KASHIF NASEEM VS FEDERATION OF PAKISTAN, 2007 PTD-KARACHI-HIGH-COURT-SINDH 2250 (2007)

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

----Ss. 25C & 25---Take-over of imported goods under S.25C of the Customs Act, 1969--Scope---Unless it was established that under invoicing had been committed, the take over of imported goods under S.25C, Customs Act, 1969 could not be allowed---Under invoicing could only be established when resort to the provisions of S.25, Customs Act, 1969 was taken in order to ascertain the actual market value of the imported consignment.

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

----Ss. 25C & 25---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Object and purpose of S.25C Customs Act, 1969---Take over of imported goods under S.25C of Customs Act, 1969---Procedure to be adopted by the Customs Authorities before taking-over the imported goods under S.25C Customs Act, 1969 and obligations of importer in such a situation, elaborated with illustrations by High Court.

Section 25 of the Customs Act provides several steps for the purposes of determining customs value of imported goods. The customs value so determined is then treated as their transactional value and applicable rate of duty is computed on such value. While determining customs value, there is always a .chance that customs official may determine such value that might be substantially lower than the actual transactional value of the imported goods. In order to curb clearance of goods at under-invoiced value, section 25C has been incorporated in the Customs Act. Under section 25C, under-invoicing of imported goods can be detected with the aid of a third party. As a first step, section 25C allows a third party to make an offer to the Customs Authorities for purchase of the imported goods at a price which is substantially higher than the declared value. Upon receiving such offer, the matter is placed before the highest official of the Customs i.e. the Collector of Customs, who is to first satisfy himself that the declared value is not the actual transactional value. The satisfaction of the Collector of Customs precedes all other steps that are required to be taken under section 25C for the take over of the imported goods. Therefore, before any step for take-over of the imported goods mentioned in section 25C(1)(i)(ii)(iii), (2) and (3) is taken, the Collector of Customs has to satisfy himself as to the actual value of the imported goods. If he finds the actual value of the imported goods is higher than its declared value, only then he would take further steps provided for take-over of imported goods under section 25C (1)(i)(ii)(iii), (2) and (3) of the Customs Act. Mere getting a substantially high offer from a local purchaser without any finding as to the under invoicing of the imported goods, is not sufficient to set in motion the process of take-over under section 25C.

It is for this reason that the word "satisfy" appears in section 25C of the Customs Act. If the satisfaction of Collector of Customs as to the real transactional value is not treated as a condition precedent, then, it would be giving an altogether different, meaning to section 25C and permitting levy of customs duty at a value which a local buyer is willing to pay for the imported goods ignoring altogether the actual transactional value of the imported goods. Without under-invoicing being established, accepting an offer of a third party would amount to forced take-over of importer's goods without any fault on the part of the importer. Therefore, forced take-over of goods belonging to one by another can only be legitimate if it is established that the importer has under-invoiced his imports. Unless under-invoicing is determined by the Collector of Customs by resorting to the modes provided under Section 25, forced take-over of imported goods under section 25C cannot be justified on any principle of law.

The object of section 25C of the Customs Act can never be to allow take-over of goods of an honest importer by accepting a higher price for his goods but the object is to curb, the tendency of under invoicing by a dishonest importer. The right of an importer to clear his goods upon payment of duties and charges at the actual transactional value cannot be taken away merely because someone from 'the local market is prepared to buy his goods at a higher price than what is prevalent in the local market for the imported consignment. No importer should be penalized or deprived of his imports under section 25C when he has not committed under-invoicing and is seeking clearance of his goods at the actual transactional value. If the process of take over of importer's goods as provided in section 25C is set in motion without first determining their actual transactional value then it would lead to abuse of section 25C. Such abuse could be on the part of a local businessman who, on the basis of prevalent market conditions at the time of import, may be willing to offer a price that is substantially higher from the actual transactional value. This abuse could also be at the behest of a dishonest importer himself. An importer may value an imported item at US $ 1.00 in his Goods Declaration though the real import value is US $ 2.00. The importer then sets up a fake buyer and through him seeks take over of the goods under the provisions of section 25-C with an offer of US $ 1.50. If the Collector of Customs is not obliged to determine the actual transaction value then he is certainly going to consider the offer of US $ 1.50 to be substantially higher than the declared value of US $ 1.00. In this manner, the Collector of Customs would charge customs duty at the offered value of US $ 1.50 instead of the actual transactional value of US $ 2.00. Such a course would definitely deprive the exchequer customs duty on actual transaction value which is US $ 2.00. This short levy of duty can easily be prevented if the Collector of Customs first determines the transaction value of the imported goods under section 25 of the Customs Act before taking steps for their take-over under section 25C.

In the present case, before the Collector of Customs could have determined the actual transactional value, the petitioner (Importer) rushed to High Court to file the present petition. The Customs Authorities on their part had even issued notice to the petitioner seeking necessary information in order to ascertain transactional value but certain pertinent information, such as the origin of the imported goods, was not provided to the Customs Authorities. It is the duty of an importer to divulge all information with regard to his imports so that the Customs Authorities may proceed smoothly with their obligation to ascertain the actual transaction value. Withholding necessary information that solely rests with the importer or is within his exclusive reach would recoil aversely upon the intentions of an importer. The Customs Authorities are not expected to embark upon a roving inquiry in order to gather information for determining transactional value of the imported consignment when information like the name and address of the exporter, the payment made to the exporter and the mode of payment and/or any other information that is in possession of the importer or is within his exclusive reach is not divulged to the Customs Authorities to facilitate them in determining the real transactional value of the imported goods. In the present case the petitioner (Importer) failed to provide all information sought by the Customs Authorities vide their letter and rushed to file the present petition thereby leaving halfway the process of determining the actual transactional value of the imported goods.

The petitioner (Importer) instead of providing all necessary information as sought by the Customs Authorities vide their notice for determining transactional value of the imported goods, unduly rushed to High Court and filed the present constitutional petition. This constitutional petition is therefore liable to be dismissed.

The petitioner (Importer) was directed by the High Court to appear before the Collector of Customs and provide all requisite information, which is within his possession or is within his control with regard to the consignment in question: The Collector of Customs, after hearing the parties, shall determine the actual transactional value of the imported goods and in case he finds that petitioner committed under-invoicing or misdeclaration of goods he shall take appropriate action in accordance with law.

(c) Customs Act (IV of 19G9)---

----Ss. 25C & 25---Take-over of imported goods under S.25C, Customs Act, 1969---Protection under intellectual property laws---Scope and effect---Object and purpose of S.25C of the Act being to curb the tendency of under-invoicing by a dishonest importer, irrespective of the fact whether imported goods were protected or not under the laws governing intellectual property, if an offer is received under S.25C, Customs Act, 1969 and pursuant thereof under-invoicing is detected then the imported goods would be subject to take-over under the provision of S.25C, Customs Act, 1969---Protection of imported goods under the intellectual property laws could not be used as a shield to resort to under-invoicing and deprive the exchequer of the customs duties and charges at the actual transaction value.

M. Shafi Siddiqui for Petitioner.

Aqeel Ahmed Abbasi and M. Haseeb Jamali for Respondents.

Date of hearing: 21st February, 2007.

JUDGMENT

FAISAL ARAB, J.---In August, 2006 the petitioner imported a consignment of dry battery cells from China. The battery cells which carried brand name "King" were imported by petitioner under the authorization of petitioner's sister concern Diamond Impex Corporation, the owner of the brand. When the consignment reached Karachi Port, the petitioner filed his Goods Declaration for clearance on 30-10-2006, however the consignment was not released as the Customs Authorities had received an offer under section 25C of the Customs Act for the purchase of the consignment from respondent No. 5, a local manufacturer of dry battery cells. The offer was almost double the value declared in the Goods Declaration. The Customs Authorities issued notice to the petitioner on 6-11-2006 seeking various quaries in order to verify .the value of the imported consignment. The said notice was responded. by the petitioner vide his letter dated 7-11-2006 but the requisite information sought from the petitioner was -not provided in entirety, who then rushed to the Court and filed the present petition on 20-11-2006 seeking following reliefs:---

(A) To declare that the goods of the petitioner imported under the Bill of Lading No.Z305027327 at Karachi International Container Terminal are the goods imported under the copyrights/Trade Mark laws and hence the respondents are not entitled to entertain any offer under section 25-C of the Customs Act.

(B) To declare that the section 25-C of the Customs Act is not applicable on the goods imported or being imported by the petitioner or any of its sister concerns under the copyrights/Trade Mark Laws regarding which the petitioner or any of its sister concerns have intellectual property rights.

(C) To grant permanent injunction, restraining the respondents, their agents, employees, servants subordinate or anybody else claiming or acting through or under them from detaining or retaining or taking over the goods of the petitioner imported under intellectual property rights in terms of section 25-C of the Customs Act, and the petitioner is entitled for the release of his present and future goods in terms of transactional value/declared value as disclosed by the petitioner or under section 25 of the Customs Act, 1969.

(D) To direct the respondents to release the subject goods i.e. Dry Battery Cell imported under the brand name "King Battery Cell" immediately as the Customs duties and as well as taxes have already been paid and/or on payment of any other amount as this Honourable Court may deem fit .and proper under the circumstances of this case.

Mr. M. Shafi Siddiqui, learned counsel for the petitioner argued that it is not open to a local buyer to make an offer to buy the imported goods and take them at higher price without any under-invoicing being established through the process provided under section 25 of the Customs Act.

On the other hand Mr. Haseeb Jamali, learned counsel for respondent No.5 though admitted that the purpose of enacting section 25C is to curb the menace of under-invoicing but submitted that the petitioner instead of establishing the import value declared before the Customs Authority to be correct rushed to file the present petition. He submitted that the offer made by the respondent No. 5 vide its letter dated 3-11-2006 is almost double the value declared by the petitioner in their Goods Declaration which by itself shows that under-invoicing has been committed in relation to imported consignment .and therefore the consignment was liable for take over under section 25-C, of the Customs Act.

Mr. Aqeel Ahmad Abbasi, learned counsel for the Customs Authorities argued that once the respondent No. 5 exercised his rights under section 25-C, it was up to the petitioner to match the offer within a period of 7 days and having riot done so, the Customs Authorities were bound to entertain the offer of respondent No.5 under the provisions of section 25C of the Customs Act.

In our view unless it is established that under-invoicing has been committed, the take over of the imparted goods under section 25-C A cannot be allowed and under invoicing can only be established when resort to the provisions of section 25 of Customs Act is had in order to ascertain the actual market value of the imported consignment.

Section 25 of the Customs Act provides several steps for the purpose of determining customs value of imported goods. The customs value so determined is then treated as their transactional value and applicable rate of duty is computed on such value. While determining customs value, there is always a chance that customs official may determine such value that might be substantially lower than the actual transactional value of the imported goods. In order to curb clearance of goods at under-invoiced value, section 25C has been incorporated in the Customs Act. Under section 25C, under-invoicing of imported goods can be detected with the aid of the third party. As a first step, section 25C allows a third party to make an offer to the Customs Authorities for purchase of the imported goods at a price which is substantially higher than the declared value. Upon receiving such offer, the matter is placed before the highest official of the Customs i.e. the Collector of the Customs, who is to first satisfy himself that the declared value is not the actual transactional value. The satisfaction of the Collector of Customs proceeds all other steps that are required to be taken under section 25C for the take over of the imported goods. Therefore, before any step for take over of the imported goods mentioned in section 25C (1) (i) (ii) (iii), (2) and (3) is taken the Collector of the Customs has to satisfy himself as to the actual value of the imported goods. If he finds the actual value of the imported goods is higher than its declared value, only then he would take further steps provided for take over of the imported goods under section 25C (1) (i) (ii) (iii),(2) and (3) of the Customs Act. Mere getting a substantially high offer from a local purchaser without any finding as to under-invoicing of the imported goods is not sufficient to set in .motion the process of take over under section 25-C.

It is for reason that the word "satisfy" appears in section- 25C of the Customs Act. If the satisfaction of Collector of Customs as to the real transactional value is .not treated as a condition precedent, then we would be giving altogether different meaning to section 25C and permitting levy of customs duty at a value which a local buyer is willing to pay for the imported goods ignoring altogether the actual transactional value of the imported goods. Without under-invoicing being established, accepting an offer of third party would amount to forced .take over of importer's goods without any fault on the part of the importer. Therefore, forced takeover of the goods belonging to one by another could only be legitimate if it established that the importer has under-invoiced his imports. Unless under-invoicing is determined by the Collector of the Customs by resorting to the modes provided under section 25, forced takeover of imported goods under section 25C cannot be justified on any principle of law.

The object of section 25C of the Customs Act can never be to allow takeover of goods of an honest importer by accepting a higher price for his goods but the object is to curb the tendency of under-invoicing by a dishonest importer. The right of an importer to clear his goods upon payment of duties and charges at the actual transactional value cannot be taken away merely because someone from the local market is prepared to buy his goods at a higher price which prevalent in the local market for the imported consignment. No importer should be penalized or deprived of his imports under section 25C when he has not committed under-invoicing and is seeking clearance of his goods at the actual transactional value. If the process of takeover of imported goods as provided in section 25C is set in motion without first determining their actual transactional value then it would lead to abuse of section 25C. Such abuse could be on the part of a local businessman who on the basis of prevalent market conditions at the time of import may be willing to offer a price that is substantially higher from the actual transactional value. This abuse could also be at the behest of a dishonest importer himself. An importer may value an imported item at US $ 1.00 in his Goods Declaration though the real import value is US $ 2.00. The importer then sets up a fake buyer and through him seek takeover of the goods under the provisions of section 25C with an offer of a US $ 1.50. If the Collector of the Customs is not obliged to determine the actual transactional value then he is certainly going to consider the offer of US $ 1.50 to be substantially higher than the declared value of US $ 1.00. In this manner, the Collector of Customs would charge customs duty at the offered value of US $ 1.50 instead of the actual transactional value of US $ 2.00. Such a course would definitely deprive the exchequer customs duty on actual transactional value which is US $ 2.00. This short levy of duty can easily be prevented if the Collector of Customs first determines the transactional value of the imported goods under section 25 of the Customs Act before taking steps for their takeover under section 25C.

In the present case, before the Collector of Customs could have determined the actual transactional value, the petitioner rushed to this Court to file the present petition. The Customs Authorities on their part had even issued notice to the petitioner on 6-11-2006 seeking necessary information in order to ascertain transactional value but certain pertinent information such as the origin of the imported goods was not provided to the Customs Authorities. It is the duty of an importer to divulge all information with regard to his imports so that the Customs Authorities may proceed smoothly with their obligation to ascertain the actual transaction value. Withholding necessary information that solely rests with the importer or is within his exclusive reach would recoil adversely upon the intentions of an importer. The Customs Authorities are not expected to embark upon a roving inquiry in order to gather information for determining transactional value of the imported consignment when information like the name and the address of the exporter, the payment made to the exporter and the mode of payment and/or any other information that is in possession of the importer or is within his exclusive reach is not divulged to the Customs Authorities to facilitate them in determining the real transactional value of the imported goods. In the present case the petitioner failed to provide all information sought by the Customs Authorities vide letter dated 6-11-2006 and rushed to file the present petition thereby leaving halfway the process of determining the actual transactional value of the imported goods.

The petitioner's counsel next argued that section 25C of the Customs Act would not apply to goods, which are protected under copyright or trademark laws. He submitted that an importer may earn huge profit on his imported goods for the fact that the brand name of the imported goods enjoy a good reputation in the market and are registered under trademark or copyright laws and therefore the quantum of profit made in the local market on such goods become immaterial for invoking the provisions of section 25C of the Customs Act. According to him a local purchaser cannot be allowed to take advantage of higher margin of profit in the local market for the goods registered under trademark or copyright laws. He submitted if such a course is allowed, the Custom Houses would become an auction house and anyone from the local market would then make offers to takeover the goods at a higher price under the garb of invoking section 25C without making any effort to create market for the branded goods in the local market.

On the other hand Mr. Jamali learned counsel for respondent No.5 submitted that section 25C of the Customs Act envisages no distinction between ordinary goods and goods registered under trademark or copyright laws and therefore both are to be dealt with under the provisions of section 25C without distinction.

As discussed in earlier part of this judgment, the object and purpose of section 25C of the Customs Act is to curb the tendency of under-invoicing by a dishonest importer. Therefore, irrespective of the fact whether imported goods are protected or not under the laws governing intellectual property, if an offer is received under section 25C and pursuant thereof under-invoicing is detected then the imported goods would be subject to takeover under the provisions of section 25C. The protection of imported goods under the intellectual property laws cannot be used as a shield to resort to under-invoicing and deprive the exchequer of the customs duties and charges at the actual transactional value.

Mr. Jamali has also argued- that petitioner has not only committed under-invoicing but is also guilty of misdeclaration as the disputed consignment was of dry battery cells but the same has been declared by the petitioner to be an electronic item. As we are inclined to refer the matter back to the Collector of Customs to determine the real transactional value of the consignment in question, the dispute as to misdeclaration shall also be addressed in the proceedings before the Collector on its own merits.

In the circumstances, we are of the view that the petitioner instead of providing all necessary information as sought by the Customs Authorities vide their notice dated 6-11-2006 for determining transactional value of the imported goods, unduly rushed to this Court and filed the present petition. This petition is therefore liable to be dismissed.

The petitioner is directed to appear before the Collector of Customs and provide all requisite informations, which is within his possession or is within his control with regard to the consignment in question. The Collector of Customs after hearing the parties shall determine the actual transactional value of the imported goods and in case he finds that petitioner committed under-invoicing or misdeclaration of goods, the Collector of Customs shall take appropriate action in accordance with law. The respondent No.5, if it so chooses, shall be free to join the proceedings before the Collector of Customs in order to assist the Collector in the determination of actual transactional value of the disputed consignment.

This petition stands dismissed in limine.

M.B.A./K-19/KOrder accordingly.