M.A. IMPEX, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 649 (2004)

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

----Ss. 25, 32(1a), 156(1) & 14---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(b)(c)---Categorization---Literature/specification---Misdeclaration---Show-cause notice---Valuation---Laboratory report---Jurisdiction---Complaint against the order of confiscation of goods and issuance of show-cause notice under section 32(1a) of the Customs Act, 1969---Contention by the department was that consignment did not contain the substance as declared by the complainant and on the basis of test reports from the customers laboratory it was found to be different and was of more value as declared by the complainant---Validity---Correspondence made by the department with supplier was detailed about the value of the material supplied and details of invoice and the nature of the material supplied by them, which confirmed the declared version of the complainant---Identical goods imported by the complainant were cleared earlier---Test reports obtained by the department were prepared without consulting the literature of the manufacture-Constituents/components and the chemical qualities of the substance were not indicated in the report---Earlier test reports and test report of PCSIR's pertaining to the present consignment indicated that the basic component of the substance was ethylic in nature---Decision of the department was not based on cogent, reliable and relevant evidence---Customs value of imported goods was the transaction value or the price actually paid---Department had failed to prove that invoice was not genuine---Veracity of the certificates of manufacturer and exporting country's Chamber of Commerce was not questioned by the department---Show-cause notice alleging misdeclaration and under invoicing was found illegal and against the terms of section 32(1)(a) as ingredient of knowledge and belief was missing in the notice---Same being vague and not in conformity with law was thus illegal and contrary to law---Show-cause notice and of the process employed by department for rejecting the declared version of the complainant and subsequent decision taken was perverse, arbitrary, biased, oppressive, not founded on cogent and valid evidence and based on irrelevant grounds which fell within the definition of mal administration in terms of section 2(3)(i)(b)(c) of the Ordinance 2000---Tax Ombudsman had jurisdiction to investigate such cases.

Assistant Collector of Customs v. Khyber Electric Lamps and others 2001 SCMR 838 quoted.

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

----Ss. 25, 32(1a), 156(1) & 14---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3)(i)(b)(c) & 9(b)---Maladministration---Valuation of goods---Classification---Rejection of declared version---Legal remedies of appeal, review or revision---Test reports were arranged and the constituents/components and the chemical qualities of the substance were not indicated in the test reports---Veracity of the certificates issued by manufacturer and the Chamber of Commerce were not even questioned---Show-cause notice and, process employed by the respondent for rejecting the declared version was perverse, arbitrary, biased, oppressive and not founded on cogent and valid evidence---Such treatment fell, within the definition of maladministration and the Ombudsman had jurisdiction in this matter---Withdrawal of show-cause notice and release of goods was ordered in circumstances.

Muhammad Anwar, Consultant, Dealing Officer.

Muhammad Ashraf Hashmi for the Complainant.

Muhammad Asif, Assistant Collector (Imports), Faisalabad for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Brief facts of the case are that the complainant is a regular importer of the item known as `Clear Jointing Adhesive Based on Plastic'. The goods imported earlier during the period January, 2002 to July;' 2003 were cleared by the customs authorities at Karachi Port as well as at Faisalabad dry port. A consignment imported vide Bill of Entry No.613, dated 25-10-2003 was not cleared inspite of proper documentation. The complainant sent a reminder to the Collector of Customs, Faisalabad Dry Port for early release of the goods. The complainant also made personal calls on the Collector and the Assistant Collector requesting them for early action. He provided the literature of the manufacturer on the basis of which the goods imported earlier where tested in the laboratory and cleared under PCT Heading No.3506.9100 at declared value of US$ 1.20/kg. The price list attested by Chamber of Commerce Taiwan as required by the customs authorities was also provided.

1.1 Instead of relying on the authentic literature and the price list, the customs authorities obtained a report from the Customs Dry Port Laboratory and declared the imported item to be `Cyanoacralate Adhesive' falling under PCT Heading No.3906.9010. According to the complainant the categorization of the item adopted by the customs department on the basis of incorrect report was wrong and it was prayed that the respondent be directed to clear the cargo treating it as `Clear Jointing Adhesive based on Plastic' as before. The complainant has also prayed for compensation for loss and demurrage suffered by him:

2. In reply the respondent stated that the complainant imported a consignment claimed to be `clear jointing adhesive based on plastic' of Taiwan origin vide Bill of Entry, dated 28-10-2003 at Customs Dry Port, Faisalabad. Samples were tested in laboratory and the Lab. Report indicated that "The sample on test in absence of literature/specification is found to be Cyanoacralate Adhesive. It is in the form of colourless liquid. Stated to be used as bonding and finishing agent". The importer was informed about the Lab. Report and the matter was also referred to Controller Valuation Karachi. He vide his letter, dated 14-11-2003 informed that valuation for Cyanoacralate Adhesive of Taiwan origin was US$ 8.50 per kg. The complainant had, however, declared the value at US$ 1.2 per kg.

2.1 The complainant and his Clearing Agent were accordingly informed but no response was received from them. The assessment was, therefore, finalized on the basis of the reported valuation. The importer had tried to get the consignment cleared by misdeclaring the description of goods which were of lower value. After serving a show-cause notice, dated 21-11-2003 on the complainant a contravention report was framed against the party for misdeclaration which was submitted to Collectorate of Customs (Adjudication) for adjudication.

3. It is further stated that it is not clear that the same item was imported earlier by complainant as per details given in the complaint. The consignment lying at Customs Dry Port, Faisalabad is not `Clear Joint Adhesive Based on Plastic' but is "Cyanoacralate Adhesive" as per Caboratory report and falls within the PCT Heading No.3906.9010. For a second opinion samples were sent to Customs Dry Port Mughal Pura, Lahore Laboratory the and Lab. Report, dated 6-12-2003 declared that the samples were "Cyanoacralate Adhesive". The literature provided by the importer was of "Clear Jointing Adhesive Based on Plastic" was not relevant. It was further stated that the Collectorate of Customs Dry Port, Faisalabad has already decided the matter on the merit vide order-in original, dated 8-12-2003 ordering the confiscation of goods for mis declaration of the description and the value of the goods but the importer is reluctant in accepting the factual position and paying the leviable duty and taxes. No maladministration was, therefore, committed by the department.

4. Representatives of the both sides attended and reiterated their contentions. The AR of the complainant pointed out that on receipt of show-cause notice dated 21-11-2003 the complainant wrote to the supplier to provide certificate material exported by him. The reply to the above said letter was received on 24 11-2003 along with four enclosures in which they informed about their earlier correspondence with the Collectorate of Customs, Dry Port, Faisalabad in which the Assistant Collector (Imports) asked for price list for "Cyanoacralate Adhesive". In reply, the supplier informed that they did not manufacture "Cyanoacralate Adhesive". In addition they provided grade-wise price list of the item manufactured by item i.e., `Clear Jointing Adhesive Based on Plastic'. After receipt of this reply the Assistant Collector (Imports) again wrote to the supplier asking the details of invoice No.KH030516, dated 17-9-2003. This detail was provided by the supplier which confirmed the declared version of the complainant.

5. It was contended by the AR that correspondence made by the department with the supplier which confirmed the claim of the complainant was not in his knowledge. The literature provided by the complainant about the imported item was ignored and the decision was made on the basis of arranged test reports obtained from the customs labs., Faisalabad and Lahore. A parallel test report, dated 6-12-2003 from PCSIR 'Lab. provided by the complainant on verbal directions of AC (Adjudication) which supported the complainant's claim was not given consideration.

6. It was further contended by the AR that the complainant had not made any misdeclaration about the nature of the goods imported and the price declared at US$ 1.20 per kg was correct. In this regard, the price list duly attested by the Chamber of Commerce Taiwan was furnished by the complainant as required by the customs authorities. Instead of releasing the cargo even against the post-dated cheque as requested by the complainant on 20-11-2003, the department issued show-cause notice which was ab initio void and illegal being against the provisions of section 25 of the Customs Act, 1969 as the department had failed to establish that invoiced value was not genuine and the transaction was false or an outcome of a fraudulent activity. He placed reliance on a case reported as 2002 PTD (Trib.) 3077.

7. The representative of the respondent reiterated the contentions as contained in the reply of the respondent.

8. The arguments and contentions of the both sides were considered and documents produced were examined. The record showed that earlier seven consignments of the imported goods declared as "Clear Jointing Adhesive" were cleared during the period January, 2002 to July, 2003 (4 consignments cleared at Karachi and 3 at Dry Port Faisalabad) on the basis of Karachi Custom House Lab. test report, dated 7-1-2002 which read as under.

"Lit put up consulted:--

The sample on test is to be found to be self-curing partially cross-linked synthetic resin based on ethyl Cyanoacralate. It is in the form of colourless liquid stated to be used as adhesive/bonding agent for inner plastics".

The respondent in his reply did not refute the assertion of the complainant that identical goods were cleared earlier.

8.1 Regarding the consignment under consideration, the department obtained a test report, dated 28-10-2003 from the Dry Port Trust Laboratory, Faisalabad. This report was prepared without consulting the literature of the manufacturer, as it is evident from the report itself. It is reproduced below:

"The sample on test in absence of literature/specification is found to be Cyanocralate Adhesive. It is in, the form of colourless liquid. Stated to be used as bonding and finishing agent".

8.2 The department obtained a second test report from, the Dry Port Lab., dated 6-12-2003 which is as under:

"Test report of the same is as under:

Sample on chemical examination is found to be an alkyl 2-cyanoacralate (cyanoacralate adhesive). It is in the form of colourless liquid. It cures instantly by undergoing anionic polymerization in the presence of weak base such moisture and exhibits characteristic properties of instant/s super glue. Cyanoacralate adhesive in the bulk packing appropriately falls under heading 3906.9010 of PCT".

8.3 The complainant also obtained a test report from the PCSIR, dated 13-12-2003 on the verbal directions of the customs authorities. The said report reads as under:

"The provided sample of the colourless liquid on the basis of physicochemical tests has been evaluated to be self curring, partially cross linked resin based on ethylic a cyanoacralate with excellent binding characteristics for inner plastics".

9. A perusal of test reports dated 28-10-2003 and 6-12-2003 obtained by the department from its laboratories at Faisalabad and Lahore shows that the former report which formed the basis for action against the complainant was prepared without consulting the literature as indicated in para 8.1 supra. The reporting person jumped' to the conclusion that the substance was `Cyanoacralate Adhesive'. The constituents/components and the chemical qualities of the substance have not been indicated in the report. It can hardly be considered as a chemical examination report.

9.1 The latter report (obtained from Lahore Dry Port Lab. as a second opinion) indicates the substance to be alkyl 2 cyanoacralate. The contention of the complainant was that substance imported was not alkyl in nature but it was ethylic. The earlier test report dated 7-1-2002 prepared by the Karachi Customs Lab. on the basis of which seven consignment of the complainant were cleared earlier, and the PCSIR's report dated 13-12-2003 pertaining to the present consignment both indicate that the basic component of the substance was ethylic in nature.

9.2 These reports lend support to the complainant's contention regarding description of the imported goods to have been correctly declared as well as to his allegation that test reports dated 28-10-2003 and 6-12-2003 were arranged by the respondent to implicate him with mala fide intention. The decision of the department was not based on cogent, reliable and relevant evidence.

10. According to section 25 of the Customs Act, 1969 the customs value of the imported goods is the transaction value i.e. the price actually paid or payable for the goods when sold for export to Pakistan. The department has not proved that the invoice was not genuine and did not show the real price transacted between the importer and the supplier. The manufacture/supplier, Chamber of Commerce, Taiwan and the bank concerned had confirmed the nomenclature/description of the goods and transactional value of the consignment in reply to the queries made by the respondent. The department did not question much less disprove the veracity of the certificates of manufacturer and the Taiwanese Chamber of Commerce.

11. After the complaint was filed relying on the Customs Laboratory report discussed above the respondent served a show-cause notice dated 21-11-2003 alleging that the complainant has "misdeclared the actual description of the imported goods besides under invoicing and has tried to deprive the Government Exchequer from the Government Revenue amounting to Rs.330,896 and thus "contravened section 32(1a) of the Customs Act punishable under section 156(1)14 of the Customs Act". The complainant was called upon to show cause why Rs.330,896 be not recovered and penal action be not taken under section 156(1)14. It has been contended that the notice is illegal and not in terms of section 32(1)(a). Section 32(1) provides that if any person in connection with any matter of customs delivers any document knowing or having reasons to believe that such document is false in any material particular he shall be guilty of an offence under this section. The offence under and breach of this section will constitute if any document has been delivered knowingly and having reason to believe that such document is false in any material particular. In the notice this ingredient is missing. Reliance has been placed on Assistant Collector of Customs v. Khyber Electric Lamps and others 2001 SCMR 838. It was held as follows:

"It is necessary under subsection (1) of section 32 of the Act to show that the declarant had the knowledge or had the reason to believe the declaration or statement made by him was untrue/false and in absence of such allegation notice would be vague and would not be in accordance with law". The show-cause notice being' vague and not in conformity with law was held to be of no legal effect.

12. The show-cause notice dated 21-11-2003 suffers from same the effect. It is vague and not in conformity with law. In terms of the judgment of the Supreme Court, the notice is illegal, contrary to law and of no legal effect. As no proof of the demurrage amount has been produced the claim for compensation cannot be entertained.

13. From the facts and circumstances of the case as discussed above it is evident that the show-cause notice and the process employed by the respondent for rejecting the declared version of the complainant and subsequent decision taken was perverse, arbitrary, biased, oppressive, not founded on cogent and valid evidence and based on irrelevant grounds which fall within the definition of maladministration in terms of section 2(3)(i)(b)(c) of the Ordinance, 2000. The Ombudsman had jurisdiction to investigate such cases.

14. It is recommended that:

(i) Show-cause notice dated 21-11-2003 and all processing and order passed in pursuance thereof be withdrawn/cancelled by the competent authority.

(ii) The goods imported by the complainant be released to him.

(iii) Compliance be reported within 30 days.

M.I./287/FTOOrder accordingly.