Messrs IHSAN SONS (PVT.) LTD., KARACHI VS FEDERATION OF PAKISTAN, 2006 PTD-KARACHI-HIGH-COURT-SINDH 2209 (2006)

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

----Ss. 19 & 32---S.R.O.484(I)/92, dated 14-5-1992, Table 1---S.R.O.1284(I)/90 read with C.B.R. Clarifications, dated 27-1-1992 & 29-8-1994---General Clauses Act (I of 1897), S.11---Setting up textile unit in Rural Area (i.e. beyond 30 kilometers of outer limits of Municipal or Cantonment Board)---Exemption on import of machinery for such unit, granting of---Distance of importer's unit, measured subsequently on horizontal plane, found to be less than 30 kilometers from outer limit of Metropolitan Corporation---Denial of exemption on such ground and issuance of show cause for misdeclaration---Validity---Declaration made by importer in Bill of Entry disclosed place of installation of machinery for purpose of expansion, where earlier imported machinery was already installed---Such statement of importer had been accepted earlier by authority and there was no misdeclaration therein---Authority recalled acceptance of importer's declaration on basis of subsequent clarification of C.B.R. prescribing measurement of distance on horizontal plane instead of through road---Such was a matter of interpretation and not a matter of misdeclaration within contemplation of S.32(1) of Customs Act, 1969---View taken by authority in the order- in-original for being based on interpretation made by C.B.R. by way of clarification was not warranted in law-Importer was entitled to exemption---Principles.

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

----Ss. 19 & 195---Exemption notification/S.R.O. issued by Federal Government---Powers of Central Board of Revenue to interpret such notification/S.R.O.---Scope---C.B.R. in exercise of its administrative jurisdiction by way of clarifications could not interpret any law or add/subtract anything or expand/restrict scope of such notification/ S.R.O.s---Any addition, omission, alteration or modification in such S.R.O./notification could be made by Federal Government only and not by C.B.R. being an attached department---Principles.

Federal Government issues exemption notifications in exercise of the powers conferred by section 19 of Customs Act, 1969. There are certain other provisions in Customs Act, 1969, which empower C.B.R. also to issue certain notifications. In matters pertaining to the delegated legislation, the power has to be exercised strictly in accordance with the statutory law conferring such powers. The exemptions, scope and extent thereof under section 19 of Customs Act, 1969 are exclusively within the competence of Federal Government and therefore, the C.B.R. being an attached department has no authority to add anything or subtract or expand or restrict the scope of exemption by way of clarifications. All such alternations, additions, modifications, expansions and restrictions made by the C.B.R. in exercise of its administrative jurisdiction is not warranted in law and has no legal validity. Thus, the C.B.R. is neither empowered to interpret any law nor is authorized to add anything to the S.R.Os. issued by Federal Government in exercise of the delegated authority under particular provision of law. The addition, omission, alteration or modification in any S.R.O./notification issued by Federal Government can be made by Federal Government only and not by C.B.R. being an attached department.

Lever Brothers Pakistan Limited v. Customs Sales Tax and Central Excise Tribunal 2005 PTD 2462 ref.

Farogh Naseem for Appellant.

Raja Muhammad Iqbal for Respondent.

Date of hearing: 16th November, 2005.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---This appeal under section 196 of the Customs Act, 1969 is directed against the order, dated 18-9-1999 passed by the Customs, Excise and Sales Tax Appellate Tribunal.

The relevant facts giving rise to this appeal are that the appellant is a Private Limited Company. For the purpose of establishing an export-oriented Textile Processing Unit at Bachuki Majha District Kasoor it imported plant and machinery in the year, 1990 claiming exemption from payment of duty, Sales Tax and Iqra surcharge under S.R.O. 962(I)/90. On import of plant and machinery the appellant went in to difficulties with the customs and ultimately matter was decided by Sindh High Court in its favour in October, 1998. In the year, 1992, the Federal Government issued another S.R.O. 484(I)/92, dated 14-5-1992 granting exemption to the Industrial Units located in the Rural area. According to this S.R.O. an Industrial Unit established in the area outside 30 kilometers from Municipal or Cantonment Board was entitled to exemption on import of plant. and machinery.

In the year 1995 appellant imported certain new machineries for the purpose of expansion of Textile Unit, claiming benefit of S.R.O. 484(I)/92. The exemption was allowed by the Customs Department and the consignment was released from the port on 29-3-1995. The machinery was installed and certificate of installation was issued on 27-8-1995 by the Central Excise and Sales Tax Department as required under S.R.O. 484(I)/92. Copy of this certificate was sent to Collector of the Customs (Appraisement) Karachi by the Assistant Collector Central Excise and Sales Tax. On 22-12-1997 a sow-cause notice was issued by Collector of Customs (Appraisement) Karachi stating that Director General Intelligence and Investigation (Customs and Excise Lahore) has reported that the appellants had got released the consignment of Textile measuring without payment of customs duty under S.R.O. 484(1)/95 by declaring that their unit is located at distance of more than 30 kilometers from the outer limit of Metropolitan Corporation Lahore. It is stated that it has been alleged that according to map of Lahore Division published by Survey of Pakistan when measured on horizontal plane the distance of the unit of appellant is less than 30 kilometers from outer limit of Lahore Metropolitan Corporation, hence they are not entitled to the benefit of S.R.O. 484(I)/1995 and that the appellant by misdeclaring the fact has evaded customs duty amounting to Rs.972,885. It was further alleged in the show-cause notice that the documents delivered, declarations and statements made were false in material particulars, the importers Messrs Ehsan Sons (Pvt.) Limited were guilty of mis-declaration which is an offence under section 32(1) of the Customs Act, 1969. The appellants were therefore called upon to show-cause as to why in addition to the criminal prosecution the evaded amount of Rs.6187,193 on account of custom duty and Sales Tax should not be recovered under the provisions of section 32(1) of the Customs Act. The appellant replied that their plant is located in Rural area and beyond a distance of 30 kilometers from the outer limit of Lahore Metropolitan Corporation for the following reasons:--

(a) On grant of exemption under S.R.O. 484(1)/92, machinery was released by the Customs officials after thorough scrutiny of the fact that the appellant's unit was located beyond 30 kilometers Octroi Post Lahore, by way of measurement covering road mileage from the nearest Octroi Post. It was inconsonance with the clarification issued by Central Board of Revenue in the case of Messrs N.P. Cotton Mills in the letter, dated 27-1-1992 (in the said letter) it was clarified by the Central Board of Revenue that in supersession of its earlier letter it has been decided that for the purpose of determining rural area under S.R.O. 1284(1)/90, distance would be measured by covering road mileage from the nearest Octroi Post.

(b) The objection raised by Director-General of Intelligence and Investigation is erroneous as they are taking crow limit by way of aeronautical measurement which is not permitted in the light of clarification issued by Central Board of Revenue.

(c) No misdeclaration was made by the appellant as the fact that three Industrial Unit is stated in Rural area is inconsonance with the following document.

(i) Letter from Director of Industries Lahore, dated 5-4-1999 certifying that the appellants plant is located beyond 30 kilometers from nearest Octroi Post;

(ii) Circular from Ministry of Industries Islamabad, dated 17-12-1990.

(iii) Circular from Ministry of Industries Islamabad, dated 2-6-1991.

(iv) Certificate, dated 27-8-1995 issued by the Assistant Collector Central Excise and Land Customs stating therein that he was satisfied that the machinery and equipment imported by the appellant under S.R.O. 484(I)/92 has been installed.

It was further explained that the impugned show-cause notice issued under section 32 of the Customs Act was barred by time having been issued after six months as there was no misdeclaration.

The respondent No.3 did not accept the contentions and held vide order, dated 19-4-1999 that the appellant has confirmed that the certificate by the Ministry of Industries confirming that the crow flight distance was less than 30 kilometers was issued prior to Central Board of Revenue ruling and therefore the distance was to be measured by crow flight method and not by road as per past practice. It was further observed that the appellant took plea that in the Boards letter, dated 11-2-1995 it was stated that if part consignments were released under the Boards ruling, dated 27-1-1992 then the imports which were made after Boards new ruling, dated 29-8-1994 for the same project will also be extended the benefit of S.R.O. 484(1)/92 without new ruling for measurement of distance by the method of crow flight. The Collector of Customs further observed that the appellants were asked to produce the documents to show that the impugned consignment was a part of consignment already imported when Central Board of Revenue ruling, dated 27-1-1992 was in vogue but the appellant could not produce the relevant documents. The order of Collector contains that representative of appellant explained that the plant and machinery was originally imported in the year 1990. Objections were raised by the Customs Department and a show-cause notice for misdeclaration was also issued and finally it was decided by the High Court in the year, 1998 that the appellants were entitled for exemption and therefore the amount paid by the appellant's under protest was refunded. It was further explained that the appellant could import machinery for expansion of existing plant by claiming benefit of S.R.O. 962(1)/90 but having bad experience at the hands of Customs opted to avail area-wise concession under S.R.O. 484(I)/92. It was also pleaded that the appellant was not aware of any horizontal plane as the notification S.R.O. 484(1)/92 merely contains that the areas situated beyond 30 kilometers around the limits of Karachi and Lahore were entitled for exemption. It was also pleaded by the representative of the appellant that there was no misdeclaration or mis statement and at the best it may be a case of short levy due to inadvertence error or misconstruction falling under section 32(3), and therefore, show-cause notice could be issued within a period of six months and not after a period of two and half years.

The Collector rejected the contention for the reason that in the year, 1994 Central Board of Revenue clarified that the distance shall be measured by crow flight method and the import was made thereafter. The objection on the point of limitation was also overruled for the reason that it was case of misdeclaration and therefore subjection (1) of section 32 was attracted. The Collector observed that the sole issue was whether the measurement should be made by road or through cross flight. He then referred to Central Board of Revenue, letter,. dated 27-1-1992 wherein it was stated that for the purpose of determining rural area under S.R.O. 1284(I)/90 the distance would be measured by road mileage. He further referred to Central Board of Revenue letter, dated 29-8-1994 clarifying that the distance for the purpose of S.R.O. 484(I)/92 between the proposed Industrial undertaking and the outer boundary of Municipality or Cantonment, is to be measured in straight line on horizontal plane as provided in section 11 of the General Clauses Act, 1897. The letter, dated 27-1-1992 was superseded. The Central Board of Revenue again clarified vide its letter, dated 11-2-1995 stating therein that where part consignment were cleared under clarification, dated 27-1-1992 but some imports were made after 29-8-1994, it would be unfair to deny the benefit of rural incentive scheme on the basis of change of interpretation in cases where part of imports have already been granted concessions. It was clarified that where part consignment were released under clarification, dated 27-1-1992 the plant and machinery if imported subsequently should also be extended the benefit under the earlier clarification.

The Collector of Customs held that the Board clarification, dated 27-1-1992 was issued when the S.R.O. 484(I)/92 was not in existence. The clarification was issued for the implementation of S.R.O. 1284(1)/1990, thus it was not applicable to imports affected under S.R.O. 484(I)/92. He further observed that however the field formation/ Collectorate have continued to apply that clarification/ruling for the subsequent notifications issued on the subject of concession/exemption to rural areas. He further observed that for the purpose of implementation of S.R.O. 484(I)/92 the Board issued its ruling, dated 29-8-1994 clarifying that the distance will be measured in straight line on horizontal plane which has superseded the clarification, dated 27-1-1992. He further observed that though in terms of spirit of provisions of section 30 of the Customs Act, 1969 all the bills of entry filed on or after 29-8-1994, under S.R.O. 484(I)/92 were subjected to strict compliance to Boards letter, dated 29-8-1994, however, in order to alleviate the hardship cases and to facilitate the trade and Industry the Central Board of Revenue vide its letter, dated 11-2-1995 extended benefit of S.R.O. 484(I)/92 to rural area by measuring distance as per Board earlier clarification, dated 14-1--1992. But it was only for those part consignments which were imported before 29-8-1994. He further held that in those cases where the shipments were made after 29-8-1994 the criteria of measurement in a straight line of horizontal plane was to be applied and wherein part consignment was imported prior to 29-8-1994 such consignment were to get benefit as per Boards. earlier ruling, dated 27-1-1992.

The Collector fur her observed that in this case the consignment was imported after 29-8-1994 i.e. on 9-3-1995 hence this is not case of import of part of shipment. He ultimately held that the appellant was not entitled to the benefit of S.R.O. 484(1)/92 and it was evident that the importers had knowingly made an untrue statement in respect of rural area to deprive Government of its legitimate revenue, therefore, the offence under section 32 was established. He therefore directed the appellant to make payment of Rs.972,825 forthwith together with payment of additional tax in terms of section 34 of the Sales Tax Act, 1990 and section 86 of the Income Tax Ordinance, 1979. The penalty of Rs.50,000 was also imposed on the appellant in terms of clause (10-A) and (14) of section 156 of the Customs Act, 1969.

The appellant feeling aggrieved preferred appeal before the Customs, Excise and Sales Tax Appellate Tribunal which was dismissed vide order, dated 18-9-1999. It was inter alia contended before the Tribunal on behalf of the appellant that the criteria for measurement of distance of 30 kilometers was not laid down in the relevant S.R.O. and therefore it is to be seen in general connotation and not otherwise. It was also contended that the S.R.O. was issued by the Federal Government and the Central Board of Revenue has no legal authority to issue any instructions regarding the measurement of distance. It was also contended that no concealment of fact or misdeclaration was made and Assistant Collector issued a certificate after proper verification on personal visit and therefore the case does not fall within the ambit of section 32(2) of the Customs Act, 1969 and at the most it could a case of inadvertence, error, or misconstruction attracting provision contained in section 32(3) of the Customs Act for which the statutory time limit was six months. The learned Members of the Tribunal observed that a similar appeal preferred by another importer was dismissed by them on 10-5-1999, wherein it was held that the importer was not entitled to the exemption claimed and that the importer being fully aware that exemption was not available claimed the same which amounts to mis-declaration. In the earlier appeal they had also held that the point of limitation was not raised at the lower forum therefore the order of Adjudicating Officer was not open to any exception. The appeal was dismissed for the reason that all the points agitated thereunder were discussed in their earlier order, dated 10-5-1999 and therefore the view taken by the Collector of the Customs was held to be corrected.

We have heard Mr. Farogh Naseem learned counsel for the appellant and Mr. Raja Muhammad Iqbal learned counsel for respondent No.3. Learned Advocates for the parties have mostly reiterated the contentions raised before the forums below. We have given our anxious consideration to the contentions raised by the parties and the material placed on record. We are of the opinion that the following questions of law require consideration:--

(1) Whether in the facts and circumstances of this case any mis declaration has been made by the appellant as contemplated under subsection (1) of section 32 of the Customs Act, 1969?

(2) Whether it is a case of inadvertence and error?

(3) Whether in the facts and circumstances of the case the non-levy of customs duty if any is covered under subsection (2) of section 32 or subsection (3) thereof?

(4) Whether in the facts and circumstances of this case the learned Customs Excise and Sales Tax Appellate Tribunal was justified in holding that the show-cause notice issued to the appellant was not barred by time?

(5) Whether the Central Board of Revenue is empowered to issue clarifications in respect of S.R.Os. issued by the Federal Government., thereby adding some conditions not contained in the S.R.O.?

(6) Whether Central Board of Revenue has the authority to interpret any statute law or statutory regulatory order, issued by the Federal Government, adversely affecting the beneficiaries of the concession through the process of interpretation?

So far question No.1 is concerned we find that the exemption from payment of whole of the customs duty and Sales Tax was claimed under table 1 of the S.R.O. 484(I)/92, according to which the exemption was available for setting up units or for expansion or balancing modernization and replacement of existing units, in an area other than the Municipal or Cantonment Board limits of Karachi and Lahore and 30 kilometers are around these limits. The S.R.O. further provided that the importer shall, at the time of import of machinery, make written declaration on the bill of entry to the effect that the machinery has been imported for a project located in the area other than those specified in table 1. The appellant filed a declaration in the bill of entry as follows:--

UNDER `EXPANSION'

To be installed at village Bachuki Majha Babalaiana Otar District Kasur being outside Municipal/Town Committee limits. (Falls within rural area) we are claiming benefit of 'exempted S.R.O. 484(I)/94, dated 14-5-1992 as amended by S.R.O. 512 (I)/94, dated 9-6-1994, together with CGO on 12/81, dated 14-9-1981, S.R.O. 791(I)/91, dated 15-8-1991, and S.R.O. 490(I)/91, dated 31-5-1991 for the exemption of Customs (Duty and Sales Tax).

A perusal of the above declaration shows that the appellant merely declared the place of installation of machinery, further declaring that it was for the purpose of expansion, where earlier imported machinery was already installed. On the face of it there is no mis declaration in the above statement which was accepted by the Customs Officials and if subsequently on the basis of some interpretation the earlier acceptance is sought to be recalled on the ground that the place of installation was beyond 30 kilometers of the outer limits of Lahore through road measurement but was within the limits of 30 kilometers by straight mileage or through measurement on horizontal plane on the method for crow flight, it is a matter of interpretation and not a matter of misdeclaration. It is evident from the lengthy discussion made by the Collector in the order-in-original. The discussion made by the Collector has been reproduced in the earlier part of the judgment and it is not necessary to reproduce the same again. In shot the Collector observed that the Board clarified on 27-1-1992 that the distance should be measured through road. The Collector further observed that it was with reference to S.R.O. 1284(I)/1990 was not with reference to S.R.O. 484(I)/92 but the field formations/collectorates continued to apply that clarification/rulings for the subsequent notifications issued on the subject of concession/exemption to rural areas. The Collector further referred to the ruling issued by C.B.R. on 29-8-1994 clarifying that the distance will be measured on horizontal. plane. Again in order to alleviate hardship cases and to facilitate the trade and industry, instructed, by its letter, dated 11-2-1995 for extending benefit of S.R.O. 484(I)/92 to rural area by measuring distance as per boards earlier clarification, dated 14-1-1992. It is very obvious, that, on account of clarifications and interpretations made from time to time by the Board of Revenue, such a mess was created, that even the departmental officers were not clear as to which method was to be adopted: In these circumstances, we are of the considered opinion that the appellant has not made any mis-declaration in the bill of entry as contemplated under subsection (1) of section 32 of the Customs Act, 1969. It is specifically provided in subsection (1) of section 32 that if any person, in connection with any matter of Customs makes, or signs or causes to be made or signed or delivers or causes to be delivered to an officer of Customs, in declaration, notice, certificate or other document, whatsoever, knowing or having reason to believe that such document or statement is false in any material particular, he shall be guilty of an offence under this section. Thus a statement or declaration made under bona fide belief or in pursuance of any departmental practice or any interpretation in vogue or view held by the departmental officers, it shall not be a mis declaration within the contemplation of subsection (1) of section 32 of the Customs Act, 1969. Consequent to the above finding it is held that the appellant was entitled to the exemption on account of departmental practice with the field formations/Collectors as observed in the, `order in original'. Even if it is held that the interpretation pertaining to measurement of the distance by method of crow flight was to be adopted and the exemption claimed was not available and the Customs Officer committed error in granting the exemption, it would be a case of inadvertence or error or misconstruction and shall not be a case of non-levy of Tax on account of misstatement or misdeclaration. The question Nos. 1 and 2 are answered accordingly.

The question Nos.3 and 4 are interconnected. On account of findings on question Nos. 1 and 2, we find no hesitation in holding, that although the appellant was entitled to the exemption claimed but at the most it could be a case of non-levy of customs duty covered under subsection (3) of section 32. The period of limitation for issuance of such notice at the relevant time was six months. Question No.3 and 4 are answered accordingly.

So far question Nos. 5 to 6 are concerned it has been considered in the case of Lever Brothers Pakistan Limited v. Customs Sales Tax and Central Excise Tribunal 2005 PTD 2462. In para. 46 at page 2491 the following finding has been given:

"The learned counsel for the appellant has further placed reliance on the interpretation given by the C.B.R. in respect of the queries made in respect of exemption granted by S.R.O. 1284(I)/90. In the first instant, we are of the opinion that the C.B.R. has no place in the scheme of law, conferred with the jurisdiction to interpret any law, statutory, or in exercise of delegated authority, i.e. subordinate legislation. The point in issue already stands decided by the Hon'ble Supreme Court in the case of Central Insurance, Company, 1993 PTD 766".

We would like to add further that the exemption notifications are issued by the Federal Government in exercise of the powers conferred by section 19 of the Customs Act, 1969. There are certain other provisions in the Customs Act which empower the C.B.R. also to issue certain notifications. In matters pertaining to the delegated legislation, the power has to be exercised strictly in accordance with the statutory law conferring such powers. The exemptions and the scope and extent thereof under section 19 of the Customs Act, 1969 are exclusively within the competence of Federal Government and therefore the C.B.R. being an attached department has no authority to add anything or subtract or expand or restrict the scope of exemption by way of clarifications. All such alterations, additions, modifications, expansions and restriction made by the C.B.R. in exercise of its administrative jurisdiction is not warranted in law and has no legal validity. Thus the C.B.R. is neither empowered to interpret any law nor is authorized to add anything to the S.R.Os. issued by the Federal Government in exercise of the delegated authority under particular provision of law. The addition omission, alteration or modification in any S.R.O./notification issued by the Federal Government can be made by the Federal Government only and not by C.B.R., an attached department. The question Nos. 5 and 6 are answered accordingly.

Consequent to above discussion it is held that the learned Customs, Excise and Sales Tax Appellate Tribunal has misdirected in upholding the view taken by the Collector of the Customs in the `order in original'. Which is based on interpretation made by the C.B.R. by way of clarification which is no warranted in law. The appellant is entitled to claim exemption.

A copy of the judgment be sent to the learned Customs and Excise Appellate Tribunal to dispose of the appeal conformably to the findings given in this judgment.

S.A.K./I-13/KOrder accordingly.