WESTERN COMPUTER (PVT.) LIMITED, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2009 (2008)

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

----Ss.81(3), 80, 79, 25D, 193 & 21---Customs Rules, 2001, Rr.440 & 441---Customs General Order (12 of 2002), Chap. 66---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Provisional assessment of duty---Outstanding dues---Blocking of electronic filing of Goods Declarations at ports without any notice or order by the appropriate officers---Validity---Filing of customs documents was blocked in January 2008 whereas the order-in-original was passed on 10-5-2008 which showed that blockage of documents had been imposed before creation of demand of dues---Customs Group/Bank Guarantee Section did not issue any notice to the importer for recovery of outstanding dues intimating that if the dues were not paid within a specified period the processing of their documents/clearances of goods would be blocked---Standard operating procedure (SOP) should serve as an early warning system for the concerned customs officials to ascertain the latest position of the relevant case and recovery of dues and notify the defaulter to pay the dues immediately---Standard operating procedure shamed be modified in the complete system so that the blockage did not take place prior to the completion of assessment and without issuing notice of the outstanding dues---Federal Tax Ombudsman recommended Federal Board of Revenue to issue appropriate instructions to the Collector of Customs to decide the cases of provisional assessment on the lines proposed in paragraph 24; to revise the blocking procedure; to direct the Director General of Customs Valuation to review the valuation of goods under S.25A of the Customs Act, 1969 after affording the complainants the opportunity to represent their case, contest the evidence relied upon by the Valuation Department, and after hearing their arguments, decide the valuation within thirty days and to direct both the Collector of Customs to de-block the filing of customs documents by the importer till the decision by the Director General.

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

----S.81---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Provisional assessment of duty--Non -finalization of provisional assessment within time frame prescribed under S. 81 of the Customs Act, 1969---Complainant contended that assessment on declared value had attained finality and the post-dated cheque be returned---Demand-cum-Show-cause notice issued was not legally valid---Validity---Customs authorities often ignored the requirement of issuing an order about the finalization of provisional assessment under S.81 of the Customs Act, 1969 which was a progressive legislation and should implemented judiciously---Assessment on the basis of value determined by appropriate officials be finalized by the concerned assessing officials/group and communicated to the importer---Action taken under S.81(3) of the Customs Act, 1969 be intimated to the importer; where final determination was not made under sub-S. (2) of S.81 of the Customs Act, 1969, action under Sub-S. (4) of S.81 of the Customs Act, 1969 be implemented under intimation to the importer.

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

----S.25---Finance Act (III of 1998), Preamble--Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---GATT Code of Valuation---Value of imported and exported goods---Transaction value system of determining the customs values of imported goods had been comprehensively prescribed under S.25 of the Customs Act, 1969---Said enactment under the Finance Act, 1998 was made on the internationally recognized principles of GATT Code of Valuation---Customs officials were duty bound to determine the value of goods in accordance with the provisions of S. 25 of the Customs Act, 1969 and even the powers under S. 25A of the Customs Act, 1969 had to be exercised by following the methods laid down in S. 25 of the Customs Act, 1969.

M. Mubeen Ahsan, Advisor (Dealing Officer).

M. Afzal Awan for the Complainant.

Agha Saeed Ahmed, Deputy Collector of Customs (Law), Port Qasim and Muhammad Amir, Deputy Collector of Customs, PACCS for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).---The complaint has been filed against the Collector of Customs, MCC, Port Muhammad Bin Qasim and the Collector of Customs, MCC, PACCS, Custom House, Karachi, for (i) blocking the processing of the import consignments of the complainants without notice (by both the Collectorates) and (ii) issue of a notice by the Deputy Collector of Customs, MCC Port Qasim, for recovery of Rs.323,130/95 which allegedly was in fact a notice of a time-barred recovery case under section 81 of the Customs Act.

2. It has been alleged that the blockage of documents/processing by the two Collectorates was unwarranted under law, there was no evidence of final assessment and it was an act of harassment towards the complainants during the pendency of the adjudication which was (nothing but) a case of maladministration. It was exercise of excessive use of administrative power which amounted to maladministration as defined under subsection (3) of section 2 of the Federal Tax Ombudsman Ordinance, 2000.

3. It has been further alleged that from the (PQA Customs) notice dated 28-1-2008 it appeared that the matter related to the year 2005; the first notice was shown to have been issued on 17-3-2007. There was no evidence of its service under section 215 of the Customs Act. The hearing memo, was issued without any show-cause notice and without supply of evidence of rebuttal by the complainants, and no order-in- original had been passed till the filing of the complaint.

4. It was requested that an investigation be conducted to establish maladministration and recommendation be made to vacate the blockage of business of the Complaints till the adjudication was finally decided at the level of the Appellate Tribunal. It was also argued that the process of adjudication was barred by limitation under section 81 of the Customs Act and the Complainants were entitled for the cost of this action.

5. The Deputy Collector of Customs (Law), Port Qasim, raised preliminary objections in the reply that the complaint was not maintainable as it was filed by an unauthorized person, neither aggrieved nor authorized by the Board of Directors of the Company to represent it. It was further stated that a demand-cum-show-cause notice dated 23-9-2006 was issued to the complainants and at the time of filing of the complaint the matter was sub judice. He stated that in a similar complaint No.1130-L/2006 the Federal Tax Ombudsman had held that since the matter was under consideration before the adjudicating officer the complaint was premature.

6. It was further stated that the matter relating to determination of liability and interpretation of law, rules and regulations did not qualify for proceedings before this office, the complaint was not maintainable and was liable to be dismissed.

7. In the parawise comments it was stated that:---

(i) Since a show-cause notice (S.C.N.) dated 23-9-2006 for recovery of Rs.323,130/95 was issued, the computerized system of PRAL automatically blocked the clearance on maturity of the post-dated cheque. However, the Complainants' name was de blocked from the system on their request.

(ii) Complete and correct fact were mentioned in the demand-cum-S.C.N. that the consignment (IGM dated 19-6-2005) was under-valued and the declared value did not represent the transaction value. The goods (Computer Desks) were released under section 81 of the Customs Act against post-dated cheque and indemnity bond for the differential amount of duty at (declared value) $/PC and appraised value $15/PC. The Director General Customs Valuation issued a Valuation Ruling dated 17-5-2006 ascertaining the value at $24/PC under section 25(9) of the Act.

(iii) A S.C.N. dated 23-9-2006 was issued for recovery of the short-levied amount. Several hearing memos. from 9-10-2006 to 3-7-2007 were issued to the complainants but no one attended the hearing and adjournments were sought on one pretext or another. These notices were served through registered post/ courier service.

8. Since the Collector of Customs, PACCS, had not replied to the complaint nor did his authorized representative attend hearing on 12-5-2008, 20-5-2008 and 29-5-2008, the matter was again referred to him with a copy to the Secretary, Revenue Division, for submission of reply and to deputize a representative to attend hearing.

9. In the meanwhile the complainants through the counsel submitted an application dated 17-5-2008 that despite the fact that this office had allowed de-blockage till the finalization of the case it remained in place in the computer and non-compliance of the order was an act of defiance under section 12(2) of the Federal Tax Ombudsman Ordinance. It was requested that an order for de-blockage be passed and appropriate action be initiated against the Collector of Customs, PACCS, Karachi, and Deputy Collector of Customs, Port Qasim.

10. The Deputy Collector of Customs, PACCS, submitted parawise comments dated 11-6-2008. He reiterated the objections already raised by the Deputy Collector of Customs, Port Qasim, which need not be repeated. He stated that the Complainants had approached this office with false statement and misleading information about the provision of law and procedure of the provisional assessment system in cases of consignments cleared through PACCS under Chapter-XVIA and amended provisions of sections 79, 80, 81, 25D, 193 and 215 of the Customs Act.

11. With regards to the substance of the complaint it was stated that: -

(i) There was no bar on the complainants to file GD. They were in default and had not made adjustment of the differential amount of Rs.174,148 under subsection (3) of section 81 of the Customs Act. Finalization of the assessment was transmitted electronically and a notice a dated 31-12-2007 was also issued. Electronic record confirmed that proper hearing opportunity was given to the Complainants.

(ii) The issue of S.C.N. and order-in-original is mandatory under section 180 of the Customs Act only in case where confiscation of goods or imposition of penalty is to be made. In the light of Rules 440 and 441 of the Customs Rules there was no need to issue any notice or order.

(iii) The High Court in its order dated 26-4-2006 has held that even a note or an order on the note-sheet was enough to prove that the provisional assessment had been finalized. Further, the ' provisions of paragraph 66 of Custom General Order 12 of 2002 were redundant in the cases of clearance of cargo through PACCS.

(iv) In terms of amended provisions of 81(3) and 81(4) of the Customs Act and Rules 440 and 441 there was no question of any adjudication.

(v) It was stated that there was no maladministration and the Complainants had approached this office with the only aim to delay and avert the payment of government's legitimate revenue.

12. During the hearing of the complaint, the counsel for the complainants stated that he wrote several letters to the department to furnish copies of S.C.N. and the documents on the basis of which hearing notices had been issued but got no reply. He further stated that the complaint was also directed against the Collector of Customs, MCC PACCS, Karachi, for unlawful blockage and the Collector be advised to provisionally de-block the User ID Number till the finalization of the complaint. It was recommended that during the interim period the Complainants' User ID be de-blocked provisionally.

13. The Deputy Collector of Customs, Port Qasim, stated during the next hearing that the provisional release was allowed on or around 13-10-2005 and the case was referred to the Valuation Department on 22-10-2005. The Valuation Department issued Valuation Ruling on 17-5-2006, well within nine months of the date of provisional assessment. The processing Group issued demand-cum-S.C.N. dated 23-9-2006. The Deputy Collector argued that the crucial date of the finalization of determination of value was the date on which the Valuation Ruling was issued i.e. 17-5-2006 and not the date of issue of demand-cum-S.C.N. In this regard he referred to the decision of the President of Pakistan vide Law and Justice Division's letter No. 81/2007 Law (F.T.O.) dated 31-3-2008 that far all practical purposes the final determination of duty was made on the date the Directorate of Valuation affirmed the value of goods and the demand -cum-S.C.N. issued by the Customs on a later date was not the determination of the duty but only asking the complainants to show cause against action for recovering/ realizing the differential encashment of the post-dated cheque. He further stated that the User ID was de-blocked on 7-4-2008 on receipt of the complaint from the office of the Federal Tax Ombudsman.

14. The learned counsel stated that the bills of entry of the complainant were blocked without any notice of which they came to know when they filed the bill of entry on 17-1-2008. The Department did not sent them any communication and they obtained the copy of the printout dated 12-1-2008 showing that in one case recovery was required from the Port Qasim Collectorate and in two cases from PACCS. Before the issue of this printout the Complaints had not received any order, and directive, any demand or any intimation about the outstanding dues. They were aware that some cases of finalization of assessment under section 81 were pending with the Customs Department on which action had not been completed and the cases had become barred by time.

15. The learned counsel stated that the case was adjudicated by the Deputy Collector of Customs on 10-5-2008 raising demand of Rs.323,130/95 requiring the complainants to pay the amount within fifteen days but the blockage had already been imposed in January 2008. The Department could have taken coercive action if payment was not made within the time prescribed in the adjudication order or stay not obtained from the appropriate authority. The learned counsel reiterated that the blockage prior to adjudication was arbitrary, unjust and amounted to maladministration.

16. The learned counsel further stated that the Deputy Collector (LAW) of the Port Qasim Collectorate vide letter dated 7-4-2008 informed him that de-blocking had been allowed during the pendency of case before the Federal Tax Ombudsman but as stated in his application dated 17-5-2008 the blockage was not actually physically removed. He stated that in case of one import in January 2008 he had to visit the Port Qasim Customs on about 10 days and with great difficulty was able to file the import documents. The factual position was that the blocking mechanism was still in place, even temporary de-blocking as intimated by the Deputy Collector (Law) was not allowed and, for a consignment imported in May 2008, the filing of bill of entry was not allowed by the Department. He reiterated his request that order may be passed for de-blocking of the business and appropriate action against the two Collectorates, PACCS and Port Qasim, be taken for defiance of the direction of this office and for contempt under section 16 of the Federal Tax Ombudsman Ordinance for prejudicing the proceeding of the complaint.

17. The Deputy Collector of Customs replied that according to the standard operating procedure (SOP) the entries of all those importers whose cases were referred to and decided by the valuation department and the dates of post-dated cheques had expired are blocked. This system has been inbuilt in the computer system and no officer of customs actually passes an order for this purpose. How this SOP has come into existence and what was its legal validity was not explained by the Deputy Collector.

18. The Deputy Collector stated that the Principal Appraiser and the deputy Collector had heard the importer regarding the valuation of goods. Finally the Deputy Collector decided to obtain post-dated cheque for provisional assessment on 15-5-(year not indicated), the matter was referred to the valuation Department through electronic system and on 23-11---the Valuation Officer/Deputy Director of Valuation replied "as per previous ruling issued in similar goods".

19. On inquiry the deputy Collector stated that the final amount was not given by the Valuation Directorate. The same information was passed on to the importer. It was stated that form this message the valuation was identified by the importer as well as Department although no specific amount about final valuation was mentioned. Deputy Collector further stated that the computer system must have identified the final value and communicated it to the importer automatically because it is a built-in part of the software and no action on the part of the customs group was required. He further stated that in December 2007, the Assistant Collector of Customs (Securities) Sent a notice to the importer intimating that the post-dated cheque had been returned with the remarks that the account had been closed and the importer was required to pay the amount of Rs.174,140 immediately failing which the imports would be blocked.

20. The contents of the complaint, the detailed arguments put forward by the learned counsel in writing as well as during prolonged hearing and submissions and statements made by two Deputy Collectors have been examined. The main allegation relates to the blocking of the electronic filing of the Goods Declarations at the Karachi port as well as the Port Muhammad Bin Qasim without any notice or order by the appropriate officers. The complaint also relates to the non-finalization of provisional assessment within the time-frame prescribed under section 81 of the Customs Act and, therefore, according to the counsel for the complainants, the assessment on declared value had attained finality. Consequently, it has been urged, the post-dated cheque be returned and the demand-cum-S.C.N. issued by the Deputy Collector was not legally valid. This office has taken cognizance of the complaint to investigate those allegations. The contention of the customs officials that the matter in outside the jurisdiction of this office is too flimsy- to be given any credence.

21. The Department has taken the please that the importer had grossly under-valued the goods (Computer Desks) at $5 per piece, the Customs Group had appraised the value at $ 15 per piece which was not accepted by the importer and provisional release was allowed under section 81 of the Customs Act. When the matter was referred to the valuation department the value was determined at $24/ per piece vide Valuation Ruling dated 17-5-2006 within the stipulated period whose validity could not be challenged in the light of the judgment of the President of Pakistan. Since the determined value was much higher and the post-dated cheque did not cover the differential amount of duty and taxes, the Deputy Collector decided to issue a demand-cum-S.C.N. dated 23-9-2006. About ten hearing notices were issued; the final hearing notice was issued on 31-3-2008 after this complainants was referred to the respondents for comments. Even if the complainants or their counsel did not attend the hearing, there was no justification for delaying the adjudication by over two years.

22. The Customs officials have taken the plea that with the introduction of PACCS Rules vide notification S.R.O. 704(I)/2007 they are no longer bound to abide by the provisions regarding valuation of goods under the Customs Act and the Customs Rules. The transaction value system of determining the customs values of imported goods have been comprehensively prescribed under section 25 of the Customs Act. This enactment under the Finance Act, 1998 was made on the c internationally recognized principles of the GATT Code of Valuation. The Customs officials are duty-bound to determine the value of goods in accordance with the provisions of section 25 of the Act and even the powers under section 25A of the Customs Act have to be exercised by following the methods laid down in section 25.

23. It also needs to be emphasized that Chapter 66 of Customs General Order 12 of 2002 has not become redundant. Unless so decided by the Federal Board of Revenue, the Customs officials ignoring these provisions (and calling them as redundant) are clearly committing disobedience of the Federal Board of Revenue's Customs General Order. Similarly the PACCS Rules incorporated in the Customs Rules have also to be followed along with the Valuation Rules in determination of the Customs values after confronting the importer with sustainable evidence, affording him the opportunity of representing his case and hearing, and passing an appealable speaking order. With the introduction of computerization, they seem to believe this whole exercise is no longer necessary and they have the authority to arbitrarily, determine the value disregarding the laid down procedure.

24. The customs authorities often ignore the requirement of issuing an order about the finalization of provisional assessment under section 81 of the Customs Act which is a progressive legislation and should be implemented judiciously. This office is of the view that assessment on the basis of value determined by appropriate officials be finalized by the concerned assessing officials/Group and communicated to the importer. The action taken under subsection (3) of section 81 ibid be intimated to the importer; where final determination is not made under subsection (2), action under subsection (4) be implemented under intimation to the importer.

25. With regard to the allegation that in both the Collectorates of Port Qasim and PACCS, Karachi, the clearances of the complainants were automatically blocked when the dates of the post-dated cheques deposited as security had expired, the counsel for the complainants has pointed out that the filing of customs documents was blocked in January, 2008 whereas the order-in-original was passed by the Deputy Collector of Customs on 10-5-2008. This shows that blockage of documents had been imposed before the creation of demand of dues. It seems that Customs Group/Bank Guarantee Section do not issue any notice to the importer for recovery of outstanding dues intimating that if the dues are not paid within a specified period the processing of their documents/clearances of goods would be blocked. In fact the SOP should serve as an early warning system for the concerned customs officials to ascertain the latest position of the relevant cases and recovery of dues and notify the defaulter to pay the dues immediately. It would be appropriate if the SOP is modified in the computer system so that the blockage does not take place prior to the completion of assessment and without issuing notice of the outstanding dues.

26. It is recommended that Federal Board of Revenue issue appropriate instructions to the Collectors of Customs to

(i) decide the cases of provisional assessment on the lines proposed at paragraph 24; and

(ii) revise the blocking procedure in the light of the proposal at paragraph 25;

(iii) direct the Director General of Customs Valuation to review the valuation of goods under section 25A of the Customs Act after affording the complainants the opportunity to represent their case, contest the evidence relied upon by the Valuation Department, and hearing their arguments, and decide the valuation within thirty days; and

(iv) direct both the Collectors of Customs to de-block the filing of customs documents by the importer till the decision by the Director General.

(v) Compliance be reported to this office within forty five days.

C.M.A./89/FTOOrder accordingly.