Messrs DEWAN HATTAR CEMENT LTD., HARIPUR VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1080 (2007)

Customs Act (IV of 1969)---

---Ss. 202 & 195-C---S.R.O. 484(I)/92, dated 14-6-1992---S.R.O. 978(I)/95, dated 5-11-1995---S.R.O. 1050(I)/95, dated 29-10-1995---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Regulatory duty---Recovery proceedings---Complainants contended that agreement to resolve the issue through S.195-C of the Customs Act, 1969 mechanism had created an. estoppel on the Department and the Department could not approbate and reprobate at the same time, since on the one hand Department was allowing the complainants to get the issue resolved under S.195-C of the Customs Act, 1969 while on the other hand it had invoked the recovery proceedings-Validity-Complainant had raised no issue invoking maladministration that required to be settled---No intervention was called for---Record indicated that the Department previously agreed to submit the case before the Alternate Dispute Resolution Committee---Complainants themselves requested that the case may be put up for alternate dispute settlement---Federal Tax Ombudsman, under the circumstances, recommended that the case be taken up by the Alternate Dispute Resolution Committee in the Central Board of Revenue and the issue should be heard and decided by the said Committee within one month.

M. Imran Javaid and M. Afzal Awan for Complainant.

Syed Asad Raza Rizvi, D.C. (Customs) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---Maladministration in the instant case has been alleged on grounds that the complainants were served with a recovery notice for an amount of Rs.45,362,621 levied as regulatory duty on the imports of machinery and equipment made by them during the period from 1990-1995. It was further contended by the complainants that demand made by the Respondents by way of a notice under section 202 of the Customs Act was unjust, arbitrary and untenable.

2. It was inter alia argued as follows:-

(i) The Recovery Officer, Customs House, Rawalpindi issued notice under section 202 of the Customs Act, 1969 to the complainant on 15-9-2006 which was violative of law and within the meaning of section 2(3) of the Federal Tax Ombudsman Ordinance, 2000.

(ii) The complainant imported 35 consignments of plant, machinery and equipment and filed 35 bills of entry for clearance of plant and machinery by claiming the exemption of customs duty and sales tax under S.R.O. 484(I)/92, dated 14-6-1992. As per S.R.O. 484(I)/92, dated 14-6-1992, the exemption of customs duty and taxes were available if he plant, machinery and equipment was imported during the period commencing on 1-12-1990 and ending on 30-6-1990. The plant and machinery arrived after 30-6-1995 and therefore the customs authorities refused to allow the exemption of duties and taxes under the provisions of exempting notification S.R.O. 484(I)/92, dated 14-6-1992. Thereafter, the complainant and other industrialist of the country approached the Federal Government to extend the exemption contained in S.R.O. 484(I)/92 where the letter of credits have already been established and requested that whole of the exemption of customs duties and taxes as were prevailing prior to 30-6-1995 may be allowed. The Federal Government considering the above. aspect was pleased to extend the exemption of customs duties and taxes and issued S.R.O. 978(I)/95, dated 5-11-1995 which exempted customs duty and sales tax in excess of twenty five per cent of the duty and tax leviable on plant and machinery as was not manufactured locally and the letter of credit' had been opened prior to 30-6-1995.

(iii) The Federal Government also imposed a new customs duty i.e. Regulatory Duty vide S.R.O. 1050(I)/95, dated 29-10-1995. The said Regulatory Duty was imposed on the 35 consignments. The complainants disagreed and challenged the levy through a constitutional petition in the High Court of Peshawar. The High Court decided the case in complainant's favour and ruled that Regulatory Duty was not payable. The C.B.R./Revenue Division filed Appeal in the Supreme Court of Pakistan and through a reported case Collector of Customs, v. Ravi Spinning Limited. The Hon'ble Supreme Court held hat Regulatory Duty is not exempt under S.R.O. 484(1)/92, dated 14-6-1992 and enunciated a principle of law that where there is an exempting notification prevailing in the country, which does not create a nexus with the First Schedule to the Customs Act, 1969, then the Regulatory Duty is not applicable and is not payable.

(iv) It was mutually agreed between the C.B.R. and the importers that the issue regarding Regulatory Duty shall be taken up with C.B.R. Alternate Dispute Resolution Committee under section 195-C of the Customs Act, 1969, and be decided as per its recommendations. The committee has not yet been constituted by the C.B.R./Revenue Division and in the meantime the Collector of Customs and Recovery Officer, Custom House, Rawalpindi has issued notices under section 202 of the Customs Act, 1969 leading the filing o. this complaint before the Hon'ble Federal Tax Ombudsman.

(v) It was further stated that the Respondents mutually agreed with the complainant that the charge of Regulatory Duty shall be decided under the Alternate Dispute Resolution Mechanism under section 195-C of the Customs Act, 1969 vide meeting on 17-12-2005. The agreement to resolve the issue through section 195-C mechanism has created an estoppel on Respondents and they cannot approbate and reprobate at the same time, since on the one hand they were allowing the complainants to get the issue resolved under section 195-C of the Customs Act, 1969 and on the other the Respondents had invoked the recovery proceedings.

(vi) The Supreme Court in its judgment supra has held that Regulatory Duty was not payable where the exempting notification does not create a nexus with First Schedule to the Customs Act, 1969. In the instant case the Federal Government has exempted Regulatory Duty under S.R.O. 978(1)/95, dated 5-11-1995 and the language of the S.R.O. shows that no nexus has been created with the First Schedule to the Customs Act, 1969 and therefore Regulatory Duty is not applicable. No opportunity of hearing has been granted which was violating of the principles of natural justice as well and hence constituted maldministration.

It was prayed that in the interest of justice the issuance of notice issued under section 202 of the Customs Act, 1969 may be declared as an act of maladministration within the meaning of Federal Tax Ombudsman Ordinance, 2000. It was further prayed that alternatively the Respondent may be advised to refer the matter to Alternate Dispute Resolution Mechanism under section 195-C of the Customs Act, 1969.

3. Responding to the notice under section 19(4) of the Ordinance XXXV of 2000 the Respondent/Department stated as under:

(i) Messrs Saadi Cement Ltd. (formerly Hattar Cement), imported various consignments of cement plant and machinery during the years, 1995 to 1997 and sought their release in terms of S.R.O. 484(1)/92, dated 14-6-1992. As the goods were imported after the expiry of above said S.R.O., the benefit of the same was not extended. Messrs Saadi Cement Ltd. Hattar, filed various writ petitions before the Hon'ble Lahore High Court, Rawalpindi Bench, Rawalpindi and goods were released in terms of Lahore High Court order, dated 10-1-1996 on furnishing of Bank Guarantee amounting to Rs.41.95 million.

(ii) The Hon'ble Lahore High Court vacated the stay order in writ petition. Subsequently, the contention of the Department regarding levy of Regulatory Duty was also upheld.

(iii) Since the unit defaulted to make payment against the Bank Guarantees and Indemnity Bonds submitted at the time of clearance of the subject machinery imported and released in terms of S.R.O. 484(I)/92, dated 14-6-1992 read with S.R.O. 978(1)/95, dated 4-10-1995, therefore the Collector blocked the bank accounts of the concerned unit in the month of December, 2004 in terms of the provisions of Recovery Rules, 2001, resultantly the unit deposited an amount of Rs.8.732 million. Subsequently, Messrs Saadi Cement Ltd. approached the Board seeking deferment of payment which was granted directing the "frozen accounts of Messrs Saadi Cement Ltd. Hatter may be de-blocked and payment may be settled before 30-6-2005". The unit was asked to adhere to a schedule for payment of the balance amount before 30-6-2005, however, the unit once again failed to discharge their liabilities.

(iv) The Collector had no other option but to again initiate recovery proceedings against the unit and recovery notice vide letter C. No. V-Cus/RDP/13/89/Part-II/1642, dated 22-8-2006 were issued. The Hon'ble Supreme Court vide their concluded judgment clearly decided that: "except S.R.O. No.108(I)/95, dated 12-2-1995, the imposition of Regulatory Duty by the Government under section 18(2) of the Act was effective and same could he recovered from the importer at the time of filing of bill of entry for consumption.

(v) Consequent to the Hon'ble Supreme Court judgment, other contemporary industrial units i.e. Messrs Bestway Cement, Hatter who also availed benefits of S.R.O. 484(1)/92 read with 978(1)/95 deposited leviable Customs duty along with Regulatory Duty but Messrs Saadi Cement are still reluctant to the deposit Government of dues amount to Rs.45,362,621.

4. Case has been considered in the light of arguments made and the facts on record. This case has a long history of litigation arising out of the policy that the Government was following in respect of Industry, that was set up in the Gadoon Amazi. The legal issues that have been raised by the complainants in the foregoing paras 1-0 were examined in their ramifying details by the Superior Judiciary and judgments announced.

5. Briefly, the main grievance of the complainants before this forums has arisen because they have been issued notices by the Respondents to pay the Regulatory Duty that was imposed by the Government vide S.R.O. 484(I)/92 read with 978(I)/95. This particular aspect has, already observed, has been heard and decided upon by the Hon'ble High Court Rawalpindi Bench vide Writ Petitions Nos. 1745, 1747 and 1748, dated 12-1-1999.

6. It is observed from the record that after the announcement of the decision the Complainants were compelled to pay the outstanding amount after their accounts had been frozen by the Respondents. Subsequently, the complainants also deposited a sum of Rs.87,32,000, before of their request their accounts were de-blocked, with the condition that the issue of payment be settled before 30-6-2005.

7. The complainants have raised no issue invoking maladminsitration before this Office that requires to be settled, therefore no intervention from this office is called for. The record of the case, however, indicates that the department previously agreed to submit the case before the Alternate Dispute Resolution Committee. Moreover, the complainants have themselves requested that the case may be put up for alternate dispute settlement. Under the circumstances, it is recommended as follows:

(i) The case be taken up by the Alternate Dispute Resolution Committee in the C.B.R.

(ii) The issues should be heard and decided by the said Committee within one month.

C.M.A./4/FTOOrder accordingly.