Customs Appeal No. K-982 of 2001, decided on 21st October, 2005. VS Customs Appeal No. K-982 of 2001, decided on 21st October, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 656 (2005)

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

----S. 81---Provisional assessment of duty----Nature and character of provisional assessment---Explanation.

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

----S.81(4)----Provisional assessment of duty---Limitation for finalization of assessment--Payment of additional amount or bank guarantee having been required to secure the tentative maximum in the mind of Revenue---Such could not mature into final assessment merely for the reason of expiry of the period of one year contemplated in S.81(4) of the Customs Act, 1969---No mechanism is available in the Customs Act, 1969 whereby an importer or exporter could force the department to finalize an assessment.

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

----S.81(2)---Provisional assessment of duty---Limitation for finalization of assessment---Customs authorities had failed to finalize the assessment of the assessee within the stipulated period as provided by subsection (2) of S.81 of the Customs Act, 1969---Provisional assessment made by the Customs Authorities in terms of S.81(1) of the Customs Act, 1969, had attained finality on the basis of declared value of the goods by the assessee and not in any other manner---Order was set aside by the Appellate Tribunal.

Muhammad Afzal Awan for Appellant.

Manzoor Hussain Memon along with Tariq Aziz, D.R. for Respondents.

Date of hearing: 10th October, 2005.

ORDER

This appeal challenges the vires of the order dated 24-5-2001, passed by the Collector of Customs, Sales Tax and Central Excise Adjudication, Karachi-II, whereby a demand for escaped tax has been adjudged against the appellant.

2. The facts of the case are that the appellant namely Messrs Aero Asia International (Pvt.) Ltd., Karachi, did export a used Aircraft Engine No.7770 vide Bill of Export No.43906 on 26-8-1996, and subsequently re-imported the same and sought its release. The value for assessment purpose was declared at US$ 5500.

3. During the assessment proceedings the respondent received an information that the appellant did make a misdeclaration of value. It has been stated that the respondent examined the following documents. Airway Bill No.020-2190-4746 dated 31-3-1998 showing value for Customs purpose at US$ 169500 and freight at US$ 6735.30. Copy of Invoice No.57707 dated 13-3-1998 showing details of the expenses incurred in the repair of engine. The respondent accordingly came to the conclusion that the expenses incurred on- repair and freight were not included in the value of goods declared.

4. Nevertheless, the goods were released at the declared value plus 20% loading plus full freight at the rate of 5% duty and free of sales tax against indemnity bond. The appellant also furnished an undertaking to pay the differential amount, if any, on finalization of the assessment.

5. Later on through a show-cause notice, it was alleged that the appellant concealed the actual cost of repair with the intention to evade revenue to the tune of Rs.7,44,089 in customs duty, Rs.3,94,272 income tax aggregating Rs.11,38,361. The appellant thus violated the provisions of section 32 of the Customs Act, 1969.

6. Accordingly the appellant was asked that as to why penal action be not taken against him in addition to the recovery of escaped assessment.

7. The appellant denied the said charge levelled against him by claiming that the Aircraft Engine had not gone under any repair and as such the same was exempt from payment of import levies. The respondent, however, did not agree with his point of view and passed the impugned order. Hence this appeal.

8. The learned counsel for the appellant now contends that the present assessment was a provisional assessment. He further contends that the show-cause notice in the matter is barred by time.

9. The departmental representative states that the show-cause notice has been issued in time.

10. Rival parties have been heard and case records examined. From the pleadings of the parties the question for determination is whether or not the assessment made in the instant case was provisional and if so, what are its consequences? In order to decide the issue, it would be necessary to understand the nature and character of provisional assessment. Generally provisional assessments under section 81 of the Customs Act, 1969 involve two amounts besides the declared value by the importer or exporter. Obviously the declared value is not acceptable to the Revenue and therefore a provisional assessment can be framed for the reasons stated in subsection (1) of section 81 of the Customs Act, 1969. The Revenue on the basis of comparable case or material available with it makes a tentative assessment. That' tentative amount is the upper-ceiling and at the same time the Assessing Officer leaving a room for allowing the importer or exporter a possibility to contest the same fixes a lower sum on which the duties and levies are charged to release the consignment while the upper limit is secured through payment of additional amount or a bank guarantee. The two sums disclose the mind of the Revenue. Provisional assessment could not in any case be less than the amount at which duties and levies are charged and the consignment released. It further indicates that the Revenue is of the tentative view that final assessment or valuation of goods will not increase normally beyond the upper limit. Therefore, the difference between tentative minimum and maximum is secured by way of requiring payment of additional amount or bank guarantee. The payment of additional amount or bank guarantee having been required to secure the tentative maximum in the mind of the Revenue it cannot mature into final assessment merely for the reason of expiry of the period of one year contemplated in subsection (4) of section 81 of the Customs Act, 1969. No mechanism is available in the Customs Act, 1969 whereby an importer or exporter can force the department to finalize an assessment. On the other hand the Revenue, if one goes by its interpretation, will gain by not doing anything. It may be noted that the department having given the tentative maximum still remains comfortable as the importer/exporter remains at a disadvantageous position either depositing the additional amount or furnishing the bank guarantee on which he is liable to pay interest as long it remains intact.

11. Examination of the show-cause notice in the light of above legal position reveals that assessment made by the respondent was provisional in nature and character as outlined vide section 81 of the Customs Act, 1969.

12. A plain reading of section 81 of the Customs Act, 1969 goes to show that it has been meant to facilitate both the Customs authorities as well as the assessee in a situation, where it is not possible to assess the customs duty immediately, to get the goods released on the basis of provisional assessment for want of required test/reports/documents, for further enquiry or where for any other valid reason(s) final assessment of the goods is not possible, at the relevant time. The proviso to subsection (1) provides that at the time of provisional assessment the Customs authorities may ask the importer or the exporter, as the case may be, for payment of additional amount as security or to furnish such guarantee of scheduled bank, to secure the payment of such amount, which may be further found due on final assessment of duty over the provisional assessment. Subsection (2) to section 81 of the Customs Act, 1969 provides the period during which such provisional assessment is to be finalized by the Assessing Authority while the proviso to subsection (2) empowers the Collector of Customs to extend the period of final assessment up to 90 days under circumstances of exceptional nature after recording such circumstances. Subsection (3) to section 81 provides that on completion of assessment, the concerned Assessing Officer shall order that the amount already paid or guaranteed be adjusted against the amount payable on the basis of final assessment and the difference between the two amounts, if any, shall be paid forthwith to or by importer or exporter as the case may be. Further, subsection (4) to section 81 provides that if the final assessment is not completed within the specified period given under subsection (2) to section 81 then provisional assessment shall become final. In other words, subsection (4) to section 81 is a penal provision incorporated in the scheme for the benefit of the assesses/importers/exporters to save them from unnecessary harassment by the Customs authorities by way of keeping their cases lingering on for indefinite period on the pretext of finalizing the assessment. When the practical working of the scheme of provisional assessment, as provided under section 81 of the Customs Act, 1969, is analyzed, it will be seen that the figure of provisional assessment denotes figure of levy of duty on the basis of value declared by the importer/exporter plus any reasonable percentage of loading over such declared value made by the Assessing Officer to secure any excess payment of duties/charges, which may be found due in addition to the duty levied on the declared value of the goods, at the time of final assessment within the period stipulated by subsection (2) to section 81 of the Customs Act, 1969. It is such excess payment of duty/charges levied on the basis of loading, which are secured by charging additional amount or furnishing of guarantee of scheduled bank. Thus, it is apparent that charging of even additional amount or furnishing of guarantee subject to the terms of final assessment and not otherwise. In other words, when no final assessment is made in terms of subsection (2) to section 81, the provisional assessment will become final on declared value of goods by the assessee, and disbursement of additional amount or guarantee furnished by the importer/exporter, in terms of subsection (3) to section 81, will be regulated on such premises.

13. In the present case admittedly the 'Customs authorities had failed to finalize the assessment of the assessee within the stipulated period as provided by subsection (2) to section 81 of the Customs Act, 1969. In such circumstances, the provisional assessment made by the Customs authorities in terms of section 81(1) of the Customs Act, 1969, had attained finality on the basis of declared value of the goods by the assessee and not in any other manner. The appeal accordingly succeeds and the impugned order stands set aside.

C.M.A./552/Tax(Trib.)Appeal accepted.