B.P. INDUSTRIES LIMITED, KARACHI VS SECRETARY, REVENUE DIVISION ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1950 (2008)

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

---S.81---Final determination of duty---Principle---In case of assessment disputes, provisional determination of duty and taxes be made on submission of security by importer and Customs officials are required to complete final determination of correctly payable duty etc. within the stipulated time frame failing which provisional determination on the basis of importer's declaration becomes final.

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

---S.81---Customs General Order No.12 of 2002, para.66---Establish ment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2, (3) & 10(3)---Maladministration---Limitation---Final determina tion---Electronic message---Importer was aggrieved of demand notice issued by customs authorities informing that assessment had been finalized and post dated cheque issued at the time of provisional assessment was liable to be encashed---Plea raised by importer was that authorities did not issue final assessment appealable order within 180 days under S.81 of Customs Act, 1969---Contention of authorities was that they had, issued an electronic message to importer thus complaint was time barred---Validity---After provisional assessment, necessary action to finalize determination of assessment was with Customs Group, which might carry out necessary investigation, complete final determina tion with due process and issue a formal appealable order as mentioned in para. 66 of Customs General Order, 12 of 2002---Order for final determination of duty and taxes payable by importer had to be passed by concerned Customs Group---Electronic message of Valuation Department sent on 16-8-2007, could not be termed as the date of final determination of import levies---Only notice dated 14-5-2008 was issued after about 17 months of provisional determination of duty and taxes, which was notice of recovery and not of final determination of duty and taxes period for which had already lapsed---Such was a case of clear maladministration where provisions of S. 81 of Customs Act, 1969, procedure prescribed in Customs Valuation Rules and instructions contained in Customs General Order 12 of 2002, had been violated---Importer had also expressed apprehension of blocking of imports on account of warning contained in para. 2 of Assistant Collectors Securities' notice dated 14-5-2008---Federal Tax Ombudsman recommended that Federal Board of Revenue to direct Collector of Customs to finalize determination of duty and taxes on the basis of declaration made by importer, quash demand notice and return post-dated cheque to importer---Ombudsman further recommended to the Board to direct Collectors of Customs to formulate and notify procedure for blocking the .import/export of filing of documents for goods declaration.

M. Mubeen Ahsan, Advisor, (Dealing Officer).

M. Afzal Awan for the Complainant.

Muhammad Anwar, Deputy Collector of Customs (PACCS).

Taslim Akhtar, Assistant Director of Customs Valuation.

Altaf Ahmad, Principal Appraiser, Valuation.

FINDING/DECISION

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---Messrs. B.P. Limited, S.I.T. E, Karachi, manufacturers of Bakery products, have filed this compliant against the Demand Notice for Rs.579, 112 dated 14-5-2008 (for recovery of alleged short-levied duty and taxes) issued by the Assistant Collector Customs (Securities), Model Customs Collectorate, Care, Karachi. The facts of the case are as follows:--

(i) The Complainants imported 4600 pieces of Strach Trays at the declared value of Euro 2.38 per piece vide bill of lading dated 7-11-2006.

(ii) Goods declaration was filed on 20-12-2006 (not 12-6-2006 as stated in tile complainant) and assessment was provisionally made under section 81 of the Customs Act at $ 2.5117 Kg. after obtaining post-dated cheque of Rs.579,112 and indemnity bond as security for the disputed amount.

(iii) They received the aforesaid Demand Notice dated 14-5-2008 that the assessment had been finalized and the post-dated cheque was liable to be encashed.

(iv) A detailed representation dated 16-5-2008 was made to the Collector of Customs, Director of Customs Valuation and the Assistant Collector of Customs (Securities) requesting them to withdraw the demand notice apprehending that the respondents shall block the customs clearance of their imports for no fault or negligence on their part.

(v) It has been alleged that opportunity of hearing was not granted to them. It is a well settled law that if the customs authorities disagree with the transaction value they should give the importer an opportunity of hearing before passing the final assessment order. Failure to do so was an act of maladministration.

(vi) The respondents are legally required to issue a final assessment appealable order within 180 days under section 81 of the Customs Act. Since no such order was passed the declared value became the final value.

(vii) The respondents have failed to substantiate that the transaction value of Euro 2.30 per piece under section 25(1) of the Customs Act was not the transaction price and, therefore, the determination of customs value other than the declared value also amounted to maladministration.

2. It has been stated by the complainants that "a decision, process, recommendation, act of omission or commission which is contrary to law, rules or regulations or is perverse, arbitrary or unreasonable, unjust, biased, oppressive or discriminatory or there is neglect, delay, incompetence, inefficiency in the administration of discharge of duties and responsibilities" have been defined as maladministration under section 2(3) of the Federal Tax Ombudsman Ordinance, 2000. It was thus alleged that the issue of demand notice for Rs.597,112 amounted to maladministration on the part of the respondents.

3. The complainants stated that they had approached this office with the prayer that the following acts be declared as acts of maladministration: --

(i) The issuance of the demand notice dated 14-5-2008 for Rs.579,112 without passing any final assessment order.

(ii) The issue of the Demand Notice without giving opportunity of hearing as required under law.

(iii) The non-communication of any reason or reservation for not accepting the invoice price.

It was requested that since the respondent failed to pass final assessment order within six months, the declared price be declared as final and any other relief deemed fit be granted.

4. The Deputy Collector Customs (PACCS) Group-II, in reply to the complaint raised preliminary objections that the matter pertained to determination of value and duties/taxes and was outside the jurisdiction of the Federal Tax Ombudsman. It was stated that under subsections (3) and (4) of Section 81 of the Customs Act read with the "Explanation" the provisional assessment (including the secured duty and taxes) attained finality after expiry of the stipulated period. Additionally, the complainants have not exhausted the legal remedy of review before the Director-General of Customs Valuation under Section 25D of the Act. It was requested that the subject complaint be dismissed.

5. With regard to the facts of the case it was stated that the recovery notice was issued when the complainants' Bank refused to encash the post-dated cheque submitted as security. It was added that the computerized record and evidential GD were shown to the complainants and opportunity of hearing was provided before provisional assessment. Valuation Department also provided opportunity of hearing a number of times before finalization of assessment but the complainants did not respond to the notices. Therefore, Valuation Department vide decision dated 8-6-2007 advised finalization of provisional assessment as per valuation data/evidence available with the Collectorate and under provisions of subsections (3) and (4) of section 81 and the "Explanation", the assessment was finalized. It was stated that the Department acted within the ambit of law and procedure and the allegation of maladministration was misconceived.

6. It was further stated that the complainants failed to substantiate the declared value under subsection (1) of section 25 of the Customs Act, and provisional assessment was made under section 81(1) ibid after obtaining the security. After clearance of goods the complainants did not make any representation or appeal before any forum which proved that they had no objection to the rejection of the declared value which was not considered payable value for assessment.

7. It was further argued that issue of an order was mandatory only where confiscation of goods and imposition of penalty was involved. Further, it has been held by the High Court of Sindh vide order dated 26-4-2006 that the date on which the endorsement is made on the note-sheet (on the basis of Valuation Advice) for finalization of original assessment is adequate to treat it as final. The complainants had an opportunity to file a review application before the D.G. Valuation under section 25D of the Customs Act or file an appeal under section 193 of the Act. The argument that a final assessment order was a must was not correct. Section 81 of the Act does not provide for issuance of any order and provisions of its subsection (3) call for forthwith adjustment of the security under subsection (2) ibid.

8. It was also stated that under section 10(3) of the F.T.O. Ordinance, 2000, no complaint could be entertained after expiry of six months from the date of "being first aggrieved." It was submitted that considering the submissions made above the complaint be dismissed.

9. The authorized Representative of the Directorate-General of Customs Valuation also raised some legal objections which need not be repeated here. With regard to the facts of the complaint it was stated that the declared transaction valuation of Wooden Starch Trays imported from Germany was considered to be on the lower side and it was felt necessary to verify the prices. The importer was asked to furnish requisite documents and sample of goods and three hearing not ices were electronically transmitted but nobody appeared for hearing. He did not respondent to the notices and the matter was decided on merits.

10. During the hearing of the complaint, the learned counsel stated that the demand notice dated 14-5-2008 was issued by the Assistant Collector (Securities) intimating that the post-dated cheque had been returned unpaid and demanding the importer to pay the amount immediately failing which the imports would be blocked and recovery action would be initiated. He stated that the Customs authorities should have issued a final assessment order after finalizing the price of goods and determining the differential amount of duty and taxes due to the Customs.

11. The learned Counsel stated that Valuation Directorate claims to have issued hearing notices through the electronic computer system which they did not receive. However, even if the importer did not appear before the relevant Valuation Officer to contest or present his case, the advice given by the Valuation Department to the Appraisement Group was not made known either through electronic message or through a letter. The Customs Group did not pass any formal order of finalization of assessment as required under subsection (4) of Section 81 of the Customs Act.

12. The learned counsel stated that, firstly, since the department failed to finalize assessment within nine months of the date of provisional assessment, the assessment on the basis of declared value attained finality and the case should have been closed. Alternately, the customs authorities should have passed a speaking order showing the basis under which the value of goods had been converted to `valuation on weight' instead of "valuation per piece" as declared, and the evidence on which the provisionally appraised value had been finalized to enable the importer to seek redressal of his grievance from-the appropriate forum as repeatedly mentioned by the department in its parawise comments. Without the document, an appeal could not be filed before the Director-General Valuation.

13. The Deputy Collector of Customs (Appraisement) replied that after referring the case to the Valuation Department, several hearing notices were issued to the importer electronically to appear for hearing in the month of February 2007 but nobody attended the hearing. Final hearing was fixed for 4-6-2007 before the Assistant Director of Valuation; on 6-8-2007 the Valuation Officer wrote a note that the assessment be finalized as per 90 days' data of identical/similar goods. (It seems that the final figure of value of goods/duty and taxes payable determined by the Valuation Department was not specifically mentioned in the last electronic message conveyed to the Group concerned). He stated that under the PACCS system of Customs working, there is no provision for issuing a formal order of assessment.

14. The Assistant Director Valuation submits that the valuation was finalized on the unit value of Euro 2.5117/Kg. as mentioned in the assessment sheet electronically conveyed to the Customs Group stating that "The case may be finalized as per 90 days data of identical/similar goods (as per assessed notes) in the light of delineation of valuation work between MCC and Directorate Valuation." He stated that the direction had been given to the Customs Group to finalize the assessment on the basis of data available with them. He further stated that according to his view a formal assessment order should have been issued by the Group on the basis of advice given by the Valuation Department.

15. The learned Consultant reiterated that arbitrary blocking of clearance of goods or filing of goods declaration created serious problems for a large number of importers. Therefore, it was necessary that the FBR/ the Collector of Customs should lay down a procedure under which notice for blocking and action to that effect should only be made after passing an order for finalization of assessment under section 81 of the Customs Act.

16. The statements made and the arguments put forward by the Counsel for the complainants, the Deputy Collector of Customs, PACCS, and the Assistant Director of Customs Valuation have been examined. The contention of the Customs Department is summarized below:

(i) The Customs Group-II, after provisional assessment and submission of security, referred the matter to the Valuation Department.

(ii) The appropriate Valuation Officer sent several electronic hearing notices to the importer but nobody attended. The complainants stated they received no notice from the Valuation.

(iii) Assistant Director advised the Customs Group on 6-7-2007 to finalize the assessment as per 90 days data of identical/similar goods. (Clearly the final value was not determined and the matter was left to the Group).

(iv) The Deputy Collector of Customs stated that the new wording of section 81 of the Customs Act does not provide for issuance of an order and the provisions of it subsection (3) require forthwith adjustment of the security.

(v It is significant that the customs officials have argued that with the addition of "Explanation under section 81 of Act, if final determination is not made, the provisional assessment including the amount of secured duty and taxes shall be included in the final assessment.

17. The Counsel for the complainants has objected to the unit of value which was changed from per piece to per Kg. without explaining the basis of change. He has argued that date of hearing for final value determination was not communicated to the complainant within the stipulated, period and after provisional assessment on 20-12-2006, the demand notice was issued on 14-5-2008 i.e. after a lapse of 17 months. The counsel also agitated against arbitrary blocking of clearance of goods and urged that this action should only be made after passing a legal formal order of finalization of assessment whether electronically or through a letter/notice.

18. From the foregoing facts it transpires that the customs authorities do not consider it legally necessary to inform the importer about the basis of value determination and the duty and taxes correctly chargeable, concerned Customs Group does not issue an assessment order, they consider it their authority to order recovery of import dues without meeting the legal obligation/procedure of assessment. They have also taken the position that if the determination of duty and taxes is not finalized within the prescribed period the appraised (higher) value automatically attains finality and the security is encashable. In short, it would mean, that the Customs officials' negligence and inaction shall justify arbitrary assessment at higher value, they are free to pass an order for recovery of duty etc., and the Bank Guarantee Section is at liberty to encash the security without prior notice. This approach is clearly arbitrary, unjust, unreasonable, contrary to the provisions of law, it disregards the fair system of, provisional and final assessment where the importer's declaration is not acceptable, and contrary to the established practice of determining correctly payable duty and taxes within the legal time-frame, failing which provisional determination shall, on the basis of importer's declaration, be deemed as the final determination.

19. It is established that the correctly payable duty etc., was not 3determined by the Customs Group or the Valuation Department and the Valuation Officer only sent an electronic message on 16-8-2007 to finalize the assessment as per 90 days' data of identical/similar goods without giving specific valuation advice or ruling. The Customs Group did not pass an order about the final determination of the import dues. (This date cannot be treated as the date of final determination of import levies). The Bank Guarantee Section/the Securities Section issued a notice dated 14-5-2008 for recovery of Rs.579,112 when the post dated cheque was returned unpaid. It is significant that the Customs officials have given a different meaning to the provisions of section 81 of Customs Act. They wrongly contend that if a final determination is not made within the specified period the provisional assessment inclusive of the security amount should be deemed to be the correctly payable amount. This interpretation is completely at variance with the provisions of section 81 ibid, which allows, that in case of assessment disputes, provisional determination of duty and taxes be made on submission of security by importer, and the Customs officials are required to complete the final determination of correctly payable duty etc., within the stipulated time-frame failing which the provisional determination on the basis of the importer's declaration shall become final.

20. It may be added that after the provisional assessment, necessary action to finalize the determination of assessment lies with the Customs Group who may carry out necessary investigation, complete final determination with due process and issue a formal appealable order as laid down by the Federal Board of Revenue in para.66 of the Customs General Order 12 of 2002. Thus the order for final determination of duty and taxes payable by the importer has to be passed by the concerned Customs Group.

21. As mentioned in paragraph 19 of this order, the electronic message of Valuation Department sent on 16-8-2007 cannot be termed as the date of final determination of import levies. The only notice dated 14-5-2008 was issued after about 17 months of the provisional determination of duty and taxes; it was a notice of recovery and not of final determination of duty and taxes whose period has already lapsed. This is a clear case of maladministration where the provisions of section 81 of the Customs Act, the procedure prescribed in the Customs Valuation Rules and the instructions contained in CGO 12/2002 have been violated. The complainants have also expressed apprehension of blocking of imports on account of the warning contained in para of Assistant Collector Securities' notice dated 14-5-2008.

22. It is recommended that Federal Board of Revenue direct the Collector of Customs to

(i) finalize the determination of duty and taxes on the basis of declaration made by the importer, quash the demand notice and return the post-dated cheque to the importer;

(ii) also direct the Collectors of Customs to formulate and notify the procedure for blocking the import/exports of filing of documents for Goods Declaration.

(iii) The above action may be completed within thirty days; and

(iv) compliance be reported within forty five days.

M.H./93/F.T.O.Order accordingly.