INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN, KARACHI VS Messrs VINDER TEXTILE MILLS LTD., 2006 PTD-KARACHI-HIGH-COURT-SINDH 2132 (2006)

(a) Industrial Development Bank of Pakistan Ordinance (XXXI of 1961)---

----S.39---Customs Act (IV of 1969), Ss.19, 79 & 202---Civil Procedure Code (V of 1908), Ss.73 & 151---Sindh Chief Court Rules (0 S.), R.323---Execution of decree---Sale proceeds, distribution of---Government dues---Determination---Machinery imported under conces-sionary notification was put to auction in execution of decree passed in favour of the bank---From the sale proceeds of the machinery, Official Assignee paid customs duty, sales tax, Iqra surcharge, flood relief and withholding tax to Customs Authorities---Bank filed ,application contending that import of machinery was exempted from customs duty and other levies, therefore, Customs Authorities could not receive any amount from the sale proceeds of the machinery---Bank in its application, further contended that Customs Authorities were not party before the Court, therefore, could not claim any priority or distribution under S.73 C.P.C.---Validity---Exemption under notification could have been availed only in respect of machinery, which was imported for notified purposes and subject to fulfilling requirement laid down in the notification, provided that bill of entry as required under S.79 of Customs Act, 1979, was filed during the currency and in the manner provided for, under the exemption notification---As bill of entry was filed by importer but he could not clear the goods, then neither bank nor auction-purchaser was qualified to claim exemption from payment of customs duties or other charges or dues under the notification---When sale was effected under the provisions of Civil Procedure Code, 1908, payment was to be made in the order of priority as set down in S.73 (3) C.P.C.---Customs duty, sales tax, Iqra surcharge, flood relief and withholding tax were all statutory duties and levies imposed and recoverable by Customs Authorities under statutory mandate---All sums paid by Official Assignee to Customs Authority and Karachi Port Trust could not be questioned---Such encumbrance or charge holders were before the Court prior to sale and they had lodged their claims before Official Assignee under orders of the Court, therefore, in view of R.323 of Sindh Chief Courts Rules (O.S.) were to be treated at par with competing decree holders to assert claim and earn priority---Application was dismissed in circumstances

PICIC v. Government of Pakistan 2002 SCMR 496; Sohail Textile v. Federation of Pakistan PLD 1991 SC 329; State Life Insurance Corporation v. Hussain Mumtaz 2006 CLC 415; PIC&I Corporation v. Ali Gui Khan 1989 CLC 1774 and Mst. Shanti v. KTC 2000 CLC 595 ref.

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

----S. 19---Sales Tax Act (VII of 1990), S.3 (1)(b)---Income Tax Ordinance (XXXI of 1979), S.50 (5)---Exemption notification---Sales tax and withholding tax, recovery of---Principles---Even exemption from payment of customs duty in terms of notification issued under S.19 of Customs Act, 1969, does not exonerate from payment and collection of sales tax and withholding tax, unless otherwise exempted under respective statutes as well.

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

----S.202---Phrase "under any other law for the time being in force"---Connotation---Collection of duties and taxes, other than customs duty---Scope---Authorities of customs under S.202 of Customs Act, 1969, are statutorily bound to collect all taxes, duties and other levies as may be imposed under any other law, provided same are to be collected in the same manner as customs duty is collected---Phrase "under any other law for the time being in force" as used in S.202 of Customs Act, 1969, inevitably refers to all laws other than Customs Act, 1969,'under which duties in the nature of customs duties are levied, charged and recovered.

Aziz-ur-Rehman for Petitioner.

Shakeel Pervaiz for Respondents.

ORDER

MUSHIR ALAM, J.---C.M.A. No . 978? of 2003. Listed application under section 151, C.P.C. seeks order for the refund of the amount collected by the Customs Authorities out of the sale proceeds of the auctioned machinery. It was claimed that the Customs Authorities are not entitled to recover Sales Tax. Iqra surcharge, Flood Relief, Withholding Tax and the Custom duty. Plea of exemption is raised on the ground, inter alia, that import of the machinery put to auction, was exempted from payment of duties and other levies under notification, dated 13-12-1990, 14-5-1992 and 9-6-1994 issued under relevant laws.

2. On the strength of the notification referred to above, learned counsel for the IDBP, the petitioner contends that, the sale proceed realized through sale of charged property cannot be burdened with the claim of the Customs duties being exempt. Customs Authority could not recover Sales Tax, Iqra surcharge, Flood Relief, and Withholding Tax, which if at all payable could be recovered by the concerned authorities.

3. It was next urged that Customs duty, Sales Tax and or Income tax or Withholding Tax as claimed and demanded against each head has not been adjudicated, the claim at the whims of the Customs Department could not be allowed. According to the learned counsel, to claim any amount, determination of dues in legal or adjudication proceedings is condition precedent, which has not been done.

4. In contra, Mr. Pervaiz, learned counsel appearing for .the Custom Department, contends that the Official Assignee had filed a reference on 23-10-2001 detailing amount claimed against sale proceeds. It included amount claimed by the Customs Department under various heads of account. It was urged that on 24-4-2003 reference of O.A. was taken on record, no exception can be taken now.

5. According to Mr. Pervaiz, learned counsel for the Customs Department, on sale of imported goods, machinery and equipment, customs duty and other State revenue have precedence over any other claim. It was urged that section 6 of the Sales Tax Act, 1990, provides that, the Sales Tax is to be collected as if it is a customs duty. Analogues provision is contained in section 50(5) of the Income Tax Ordinance, 2000. It was therefore, argued that the Collector Customs has been authorized to collect all the levies in the same manner and at the time as the custom duty even if the goods otherwise are exempted from payment of customs duties.

6. I have examined the reference of the Official Assignee who has set down order of the priority as that of the Customs followed by KPT and lastly the IDBP.

7. Mr. Aziz-ur-Rehman, exercising right of rebuttal states that, in terms of section 73, C.P.C. distribution of sale proceeds is made between the parties who are before the Court. It was urged that neither the Customs Authority, nor the Income Tax nor the Sale Tax Authorities were before the Court, therefore, they cannot claim priority or ratable distribution. It was otherwise urged that subject machinery was not sold under the provisions of C.P.C. but under IDBP Ordinance, therefore, provisions of section 73 could not be invoked. Mr. Aziz-ur-Rehman in support of his contention has placed reliance on PICIC. v. Government of Pakistan (2002 SCMR 496). In the cited case, it appears that, in Banking Jurisdiction, High Court, decided objects and effected distribution under section 73, C.P.C. amongst the decree-holder and claimants seeking priority in respect of customs duty and claims under the payment of Wages Act. It was held by the apex Court that, "as far as the question of ratable distribution of assets of the judgment-debtor is concerned, it would be hit by section 18(6) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997". Matter was remanded to the High Court for consideration whether the claimants not being holder of decree are qualified to claim ratable distribution under section 73, C.P.C.?

8. Having heard the arguments and perused the record, it appears that, the Respondent No.1, obtained the credit facilities from the petitioner, and imported the subject machinery. It seems that the Respondent No. 1 defaulted, therefore instant proceedings were initiated under section 39 of the IDBP Ordinance, 1969 not only against the Respondent No.1 Company and the guarantors but also against the Customs Authorities and KPT as well.

9. In instant case subject plant and machinery when imported was under the lien of the Petitioner 1DBP, Bank. Petitioner in para. 12 of the petition claimed "However, it appears respondent No.1, has so far not got the machinery cleared and lots of demurrage and other charges have become payable and the machinery is said to be lying in the crates in the Customs/KPT premises". On 8-9-1994, Court while passing order of attachment, recorded the statement of petitioner's counsel to the effect that "He further submits that the machinery is also liable for payment of dues of KPT and customs and freight". It seems that the subject machinery was being auctioned by the Customs Authority for the recovery of dues, however at the motion of the petitioner such auction was stayed vide order, dated 3-1-1994.

10. Instant petition was granted on 19-12-1996 and official assignee was appointed as receiver to take over the machinery and effect sale thereof for realization of petitioner's claim. In said order it is also recorded that demurrage charges of KPT up to 30-6-1996 comes to Rs.176.392 Millions. With regard to customs duty in February, 1993 a sum of Rs. 10 Million was due and payable beside wharfage as per tariff in, the year 1993 was 0.115 Million and Octori Rs.4.5 Million total amount of Rs.191.007 million was thus claimed.

11. This Court vide order, dated 18-5-2000, while directing the Customs Authority to release of the subject plant and machinery, ordered that "if there is any claim same may be filed before the Official Assignee". It may thus be noted that encumbrance of the Customs Authority was not only acknowledged by the petitioner in the petition but also recorded by the Court as found in number of orders even before the subject machinery was directed to be released for auction by the Official Assignee.

12. It is further noted that the official assignee through reference, dated 20-4-2000 placed terms and condition in Court, on which the sale was confirmed. One of the agreed clause contained in paragraph 3 (viii) of the reference, reads as follows:--

"All kind of liabilities or dues of KPT/Customs or other agencies on machinery and plant of vendor Textile be paid by Official Assignee" (underlined to add emphasis).

13. Reference was signed by the Official Assignee, purchaser, his nominee and by the authorized representative of the petitioner-Bank, Mr. J. Shaffat Ali, the Vice-President, IDBP. It is noted that the Customs Authorities, pursuant to observation of Court lodged their claim as detailed in para. 3 of the reference, dated 22-10-2001, which reads as follows:

"That Official Assignee has received claims from customs, KPT and IDBP which on being examined are submitted as under:--

Japanesse Yen 1,078,888,363,14/As on 31-12-1993"

14. On 24-4-2003, by consent of the Decree-holder, following order was passed:

"O.A. reference, dated 22-10-2001 is taken on record. The dues, are to be disbursed as follows:--

(i) Customs

(ii) Thereafter IDBP and KPT the amount to be shared pro rata. However, the cut off date would be for computation when this J.M. was filed on 9-2-1997."

15. It seems that the amount was disbursed in terms of the orders referred in para. above. On 8-5-2003 petitioner filed the listed-application.

16. In view of the facts recorded above, contention of the learned counsel for the petitioner does not merit consideration, for more than one reason. Firstly the petitioners were fully aware of the claim of the Customs Authorities as mentioned in para. 12 of the petition. Even break up of the amount is mentioned in the order granting the petition, dated 19-2-1996, all the orders reflecting liability of Customs Authorities were passed by consent. Listed application in fact seeks review of the consent order, dated 24-4-2003, which is not permissible. It cannot be said that, the order is based on extraneous consideration or any error floated on the face of record. Petitioner-Bank was very much aware of the claim of the customs and other authorities all along. On this count alone the application is liable to be dismissed.

17. However, to set the controversy at rest finally, contentions of learned counsel for the petitioner were also examined on merits. It was urged that the Customs Authorities are not entitled to recover the customs duties on import of the subject machinery, exempted from payment of such duties under the relevant notifications as mentioned in the narrative above. It was next urged that Customs Authorities were not entitled to recover Sales Tax, Iqra Surcharge, Flood Relief Charges or and Withholding Tax, therefore payment made to the customs on such count cannot be justified.

18. Brief summary of facts may be kept in view to appreciate contentions on merits. It appears that, the Respondent No.1, company, had imported the subject plant and machinery, it was not cleared. The Customs Authorities were proceeding to auction the machinery to recover the customs duties and dues of the other State functionaries/ departments, in the meantime petitioner filed instant petition and obtained restraining orders. Subsequently subject machinery was sold under the orders of the Court. It appears that, originally the Respondent imported subject machinery being exempted from payment of Customs duty and sales tax under Notifications, dated 13-12-1990, 14-5-1992 and 9-6-1994. Exemption notification was issued under section 19 of the Customs Act, 1969, section 2(2) of the Finance Ordinance, 1982, and section 13 of the Sales Tax (Amendment) Act, 1990. Exemption was extended on such plant and machinery 1) as is not manufactured locally. Secondly it is imported during the period commencing on 1st December, 1990 and ending on 30th June, 1995. Thirdly, for setting up new units and for expansion or balancing, modernization and replacement of existing units in a notified area. There seems to be no dispute that the imported plant and machinery could not be cleared from customs, it was attached and sold in instant proceedings under section 39 of the IDBP Ordinance. 1961.

19. It may be observed that, the exemption under the referred notification could have been availed only in respect of machinery, which is imported for notified purposes and subject to fulfilling requirement laid down in the referred Notification. Provided also that, the Bill of Entry as required under section 79 of the Customs Act, was filed during A the currency and in the manner provided for under the Exemption Notification. There is no dispute that no bill of entry was filed, the Respondent No.1 could not clear the machinery. It is therefore, clear that; neither the Petitioner nor the auction-purchaser was qualified to claim exemption from payment. Customs duties or other charges or dues under the referred notifications.

20. There seems to be no cavil, that under section 18 of the Customs Act, 1969 all the goods imported into Pakistan are subject to statutory customs duties as prescribed in the First Schedule of the Act and or under any other law for the time being in force. Petitioner or the auction-purchaser as discussed above, were not qualified under the referred notification to claim exemption from payment of customs duty on the subject machinery. Therefore, contentions of Aziz ur Rehman, that subject machinery is exempted from payment of customs duty is without any force.

21. Adverting to Iqra surcharge, as observed above imported goods beside being subjected to statutary customs duty are also subjected to duties as may be imposed by or under any law for the time being enforced. Expression "under any other law for the time being in force" as used in section 18 of the Act of 1969, is defined by the apex Court in the case of Sohail Textile v. Federation of Pakistan PLD 1999 SC 329, as it "necessarily refers to all laws other than Customs Act, under which duties in the nature of customs duties are imposed." Iqra surcharge imposed under Finance Act, 1985 was held to be customs duty in cited case of Sohail Textile (supra) Flood Relief Surcharge was imposed under notification No. Therefore on the strength of section 18(1) of the Customs Act, the duties (Iqra surcharge) imposed by Finance Act, 1985 and Flood Relief surcharge came to be assimilated to the duties imposed under the Customs Act, 1969.

22. Sales Tax is levied under section 3(1)(b) of the Sales Tax Act, 1990, Withholding Tax is chargeable under section 50(5). of the Income Tax Ordinance, 1979 (now section 148 of Income Tax Ordinance, 2001). Withholding Tax and Sales Tax are collected under section 50(5)(b) of the Income Tax Ordinance, 1979 and section 6 of the Sales Tax Act, 1990, respectively in the same manner and at the same time as it were a duty of customs payable under the Customs Act, 1969. Even exemption from payment of customs duty in terms of Notification issued under section 19 thereof does not exonerate from payment and collection of Sales Tax and Withholding Tax unless otherwise exempted under respective statutes as well.

23. The Authorities of Customs under section 202 of the Customs Act, are statutorily bound to collect all the taxes, duties or other levies as may be imposed under any other law, provided same are to be collected in a same manner as customs duty is collected. The phrase "under any other law for the time being in force" as used in section 202 of the Act of 1969, inevitably refers to all laws other than Customs Act, under which duties in the nature of customs duties are levied, charged and recovered. As noted above both the Sales Tax and Withholding Tax under respective statutes are to be levied, charged and collected in the same manner and at the same time as the customs duty is collected. Therefore, contention of Mr. Aziz ur Rehman Advocate for the petitioner that, the Customs functionaries collected Sales Tax and Withholding Tax without any justification or authority, in view of the above cannot be sustained.

24. Section 201 of the Customs Act, provides manner in which duties of customs and any tax, duty or other levy or adjudged penalty could be recovered. Section 201 of the Customs Act provided procedure for sale of the goods and application of sale of proceeds where the goods are sold under the Customs Act. However, this Court at the motion of the petitioner stayed the sale of subject machinery.

25. Goods or machinery that are to be imported or exported presupposes imposition and payment of freight, customs duty and other taxes and dues as may be imposed and payable under Customs Act and other laws.

26. Contention of Mr. Aziz ur Rehman that, claim of priority amongst various claimants as set down section 73, C.P.C. could be invoked cannot be subscribed. The case reported as PICIC. v. Government of Pakistan (2002 SCMR 496) relied upon by Mr. Aziz-ur-Rahman, is of no avail to him. In cited case, objections to sale and distribution of sale proceed in exercise of banking jurisdiction were treated under section 73, C.P.C., though applicability of C.P.C. was excluded through non obstinate provision of section 18(6) of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997". Whereas, in the instant matter sale was carried out under IDBP Ordinance, 1961. Section 39(1) of Ordinance, 1961, which provides that attachment or sale that may be carried out under the IDBP Ordinance, 1961 is to be carried out as far as may be in the manner provided in the Code of Civil Procedure. Thus it is quite clear that, for the purposes of attachment and sale the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 excludes the applicability of C.P.C. whereas IDBP Ordinance, 1961 mandates to adhere to the provisions of C.P.C. as far as may be necessary.

27. In a case reported as State Life Insurance Corporation v. Hussain Mumtaz (2006 CLC 415), while examining inter se priority amongst various decree-holders and other claimants including KPT, and wages claim of employees of the company, of which the property was sold it was held at page 423 as follows:--

"'Upshot of above discussion, makes it clear that, a statutory claim for the recovery of tax, surcharge, penalty or dues have precedence over the priorities amongst the secured creditors like mortgagee as setout under section 73, C.P.C. This is also clear from the language of subsection (3) to section 73, C.P.C., which concedes right of the Government dues over all other claims. Government as used in section 73(3), C.P.C., in the context appears to include local or other authorities as are by law empowered to impose or levy any tax, cess, charge or dues."

28. Similar view was taken in P.I.C. & I Corporation v. Ali Gul Khan (1989 CLC 1774 at page 1777), while effecting distribution under section 45 of the Companies Ordinance, 1984 in winding proceedings where claim of WAPDA was under consideration in case reported as (sic).

29. In the case of Mst. Shanty v. KTC (2000 CLC 595 & 604) relying on IDBP v. Commissioner of Income Tax (H.C.A. No.85 of 1987 unreported) it was held that, Government liabilities arising subsequent to a charge on the property cannot have preference over the claim of secured creditors". In the cited case, it was not established that the amount of the judgment-debtor seized by the Court is subject to imposition of tax. Therefore, no priority was given to the claim of Income Tax Authority as claimed under section 92(1), 93 and 94 of the Income Tax Ordinance, 1979. In the instant case petitioner was aware of the claims as raised by the Customs not only in respect of customs duty but other taxes and levies under other laws as well.

30. Goods or machinery that are to be imported or exported presupposes imposition and payment of freight, Customs duty and other taxes and dues as may be imposed and payable under other laws. Had the goods been sold under the Customs Act, then the petitioner would be entitled to lay claim on balance amount after, appropriation of statutory dues and charges as provided under section 201 Customs Act. Position is not different in C.P.C. Even the sale effected under the provisions of C.P.C., payment is to be made in the order of priority as set down in section 73, C.P.C., subsection (3) of section 73 as observed above concedes right of the Government dues over all other claims. As noted above, Customs Duty, Sales Tax, Iqra surcharge charge, Flood Relief, and Withholding Tax are all statutory duties and levies imposed and recoverable by the Customs Authorities under statutory mandate. Therefore, all the sums paid by the Official Assignee to the Customs Authority and KPT cannot be questioned through listed-application.

31. Attending to last objection of Mr. Aziz that, dues were not adjudicated by any of the authorities therefore could not be paid. It may be observed that, objections as to the rate of duty levied and charged on account of customs duty and other levies under other laws have not been challenged or objected to at any point in time. On the contrary as noted above, petitioner not only in the petition had acknowledged above claims but also consented to such payment. Attending to last objection that, Customs and other authorities were not before the Court therefore, cannot claim any priority or distribution under section 73, C.P.C. it may be observed that the petitioner had itself joined the Customs and KPT Authority, as parties to the proceedings, therefore such objection on the face of it is not sustainable. Even otherwise duty of Customs, KPT dues, Sales Tax and Withholding Tax being statutory dues are charge and encumbrance on the machinery. Such incumbrance or charge holders were before the Court prior to sale. They had lodged their claims before the Official Assignee under orders of the Court, therefore in view of Rule 323, of Sindh Chief Courts Rules (O.S.) are to be treated at par E with competing decree-holders to asset, claim and earn priority. (See also State Life Insurance Corporation v. Hussain Mumtaz (2006 CLC 415). Last but not the least, the question as to what course is available to recover the amount paid to a person not entitled to receive under section 73 ibid was not argued by either party. (See Subjection (2) of section 73, C.P.C.). I would leave such question open to be decided in some other proceedings if so raised.

In view of the foregoing discussion the application is dismissed.

H./I-12/K???????????????????????????????????????????????????????????????????????????????? Application dismissed.