YOUNUS TEXTILE MILLS VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1777 (2006)

Customs Act (IV of 1969)---

----Ss.83(2) & 224---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Clearance for home consumption---Mark-up--Demand of mark-up @ 20% against Bank guarantee---Validity---Twenty percent mark up as agreed between the customs authorities' and the importer was not chargeable under customs law and when an importer failed to pay the customs dues, only the rate prescribed under S.83(2) of the Customs Act, 1969 could lawfully be imposed---Charging of 20% mark-up was contrary to law, arbitrary and unjust and amounted to maladministration-Demand was raised vide notices and payment of the principal amount was made----Since customs dues were not paid within thirty days of the issue of notices, surcharge @ 14% per annum for the intervening period would be payable---Federal Tax Ombudsman recommended that the Central Board of Revenue direct the Collector of Customs to recover the amount of surcharge under subsection (2) of section 83 of the Customs Act, 1969 and release the Bank guarantees after the payment of surcharge.

Petition No.843 of 2003 ref.

M. Mubeen Ahsan (Advisor) Dealing Officer.

Imran Iqbal for the Complainant.

Irfan Javed, Deputy Collector of Customs for Respondents.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).----The complaint has been filed against four demand notices dated 2-9-2005 issued by the Collector of Customs (Appraisement) for payment of mark-up against Bank guarantees filed in lieu of duty and taxes in 2003. It has been alleged that the issue of demand notices is "a decision, process, recommendation, act of omission or commission" which is contrary to law, .and is perverse, arbitrary and unreasonable," which constitute maladministration.

2. It has been stated in the complaint that the High Court in its judgment in Petition No.843 of 2003 decided that the company was liable to customs duty and other taxes. Consequently they receive from the respondent four notices dated 4-2-2005 to pay the principal amount along with mark-up @ 20%. On the basis of these notices they paid the principal amounts on 4-6-2005 and requested for release of the Bank guarantees. They contested that the mark-up was not payable as it was repugnant to law and the Customs Act.

3. It has further been stated that instead of releasing the guarantees, respondent issued four final demand notices dated 2-9-2005 for payment of mark-up amounting to Rs.224,894 failing which they would take action under section 202 of the Customs Act. They replied to the customs that mark-up was not recoverable under the Customs Act. However, the respondent did not release the Bank guarantees although their notices were illegal and without force of law.

4. It has been argued that:

(i) None of the 224 sections of the Customs Act empowers the respondent to recover mark-up in judicial cases.

(ii) In the reverse situation, the respondent never pay back refunds with mark-up in cases decided by the superior Courts. Therefore, the final demand notices were violative of law and acts of maladministration.

(iii) The contractual obligation to pay 20% mark up has no force of law as it is not supported by the Customs Act.

(iv) The order of the High Court is silent on the question of mark-up. In the of Messrs Usman Limited v. Collector of Customs, the High Court of Sindh had clearly held that mark-up was not recoverable and this ruling has a binding force under the Constitution.

5. It was requested that the four final demand notices, dated 2-9-2005 be declared without force of law and the respondent be directed to release four Bank Guarantees.

6. The Deputy Collector of Customs in reply to the complaint raised objections that the complainants had failed to substantiate any maladministration, the complaint was not entertainable under sub-sections (3)(a) of section 2 of Federal Tax Ombudsman Ordinance, it pertained to interpretation of law which fell outside the jurisdiction of this office, and it may be dismissed as barred by time under sub-section (3) of section 10 of the Ordinance.

7. He further stated that:

(i) The complainants had imported consignments of spare parts and claimed exemption of customs duty which was not admissible and assessment was completed by the respondent in 2003.

(ii) High Court allowed release of the consignments against Bank guarantees and in one of the conditions the guarantor Bank had undertaken to pay duty and taxes on demand within fifteen days and in case of delay to pay the mark-up at the prevailing Bank rate.

(iii) The petition was dismissed by the High Court vide judgment dated 23-1-2004. No appeal was filed before the Supreme Court but the complainants or the guarantor Bank did not pay the government revenue despite repeated notices.

(iv) Seven months after the High Court's judgment and nearly two years after the date of import/release of the imported goods, complainants paid Rs.2,350,922 on 4-6-2006 in customs duty and sales tax. This amount was payable at the time of importation and in case of non-payment within thirty days, the complainants were required to pay surcharge @ 14% per annum under section 83(2) of the Customs Act besides compensation for delayed payment.

(v) As per agreement with the Bank, the guarantees were to be released on fulfilment of all conditions and therefore, the demand for 20% compensation was justified.

(vi) The provisions of-sections 83, 83-A and 98 of the Customs Act read with section 72 of the Contract Act and High Court decision C.P. No.726 of 2001 clearly nullified the ground taken by the complainants who have failed to mention any judgment of the Court rendering these provisions of law redundant.

(vii) It was requested that the subject complaint be dismissed.

8. The contents of the complaint, the arguments put forward by the counsel, the objections raised by the respondent and their reply to the complainants' arguments have been examined. It is established that 20% mark-up agreed between the customs authorities and the importer is not chargeable under customs law and where an importer fails to pay the customs dues, only the rate prescribed under section 83(2) of the Customs Act can lawfully be imposed. This office has taken cognizance of this complaint because, despite the verdict of the President of Pakistan communicated vide Letter No.22 of 2004 FTO Law dated 5-5-2005 by the Law, Justice and Human Rights Division, the customs authorities were demanding 20% mark-up. This act is contrary to law, arbitrary and unjust and amounted to maladministration as defined under subsection (3) of section 2 of the Federal Tax Ombudsman Ordinance, No.XXXV of 2000.

9. From the facts of the case stated by the complainants, the demand was raised vide notices dated 4-2-2005 and payment of the principal amount was made on 4-6-2005. Since the customs dues were not paid within thirty days of the issue of notices, surcharge @ 14% per annum for the intervening period would be payable.

10. It is recommended that C.B.R. direct the Collector of Customs to:

(i) recover the amount of surcharge under subsection (2) of section 83 of the Customs Act;

(ii) release the Bank guarantees after the payment of surcharge; and

(iii) compliance be reported to this office within thirty days.

C.M.A./63/FTOOrder accordingly.