CHERAT CEMENT CO. LTD., NOWSHERA VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 661 (2004)

(a) Central Excise Rules, 1944---

----R. 13---S.R.O. No.514(I)/2001, dated 12-7-2001---Zero rated---Duty drawback---Show-cause notice---General bond---Insurance guarantee---Complainant challenged the encashment of Insurance Guarantee by the Assistant Collector being perverse, unreasonable unjust, biased and oppressive amounting to maladministration---Validity---Complainant was a regular exporter of cement to Afghanistan---Delay in production of the certificate from Consulate was not wilful and customs authorities had checked the goods at the time of export and allowed export without charging duty---Consulate had confirmed the export of woods---Assistant Collector had proceeded to pass encashment order without serving show-cause notice on the complainant---Such action was arbitrary, unjust, oppressive and contrary to law---Federal Tax Ombudsman cancelled the order of Assistant Collector and allowed benefits envisaged in S.R.O. No.514(I)/2001 dated 12-7-2001.

(b) Central Excise Rules, 1944---

----R. 13---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(a)(b)---Show-cause notice---"Audi Alteram Partem"---Dictum---Assistant Collector has passed the order of encashment without serving any show-cause notice on the complainant and thus violated the dictum and principle enshrined in the maxim Audi Alteram Partem.

2002 SCMR 1034 = 2002 PLC (C.S.) 1083 cited.

Muhammad Anwar, Consultant, Dealing Officer.

Qazi Waheed-ud-Din for the Complainant.

Imtiaz Sheikh, DCIT for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Brief facts of the case are that the complainant is a limited company engaged in the manufacture and sale of cement.

2. The Government vide Notification S.R.O. No.514(I)/2001, dated 12-7-2001 allowed export of cement and other items produced or manufactured in Pakistan to Afghanistan and Central Asian Republics through land route on filing regular shipping bills. Such export is allowed zero-rated of sales tax, central excise duty and is eligible to normal duty drawback provided that the Pakistan Embassy or Consulate in Kabul, Qandhar or Jalalabad certifies the arrival of export consignment from Pakistan.

2.1 That in order to avail the concession of export of cement without payment of central excise duty the complainant executed a general bond as a required rule 13 of Central Excise Rules 1994, with an insurance guarantee of Rs.30,000,000 (thirty million) by Messrs Adamji Insurance Company Limited.

2.2 That on 15th and 16th September, 2001 the complainant exported 2,640 metric tons of. cement to Afghanistan though Torkham without payment of central excise duty in term of Rule, 13 of Central Excise Rules, 1944- vide Shipping Bills Nos.65,66,67 and 68 all dated 15th September, 2001 and No.70 dated lath September, 2001. As is evident from examination report on reverse of the shipping bills the consignments of cement were examined and export was allowed without payment of central excise duty and tax.

2.3 That due to prevailing political conditions in Afghanistan on account of incident of 11 September, 2001 the Consulate General of Pakistan, in Jalalabad was closed and the complainant could not obtain and produce the verification certificate regarding export of 2,640 metric tons of cement from Pakistan to Afghanistan though all other documents showed that the export had taken place physically.

2.4 That the above omission was pointed out by the external audit team and the Superintendent Central Excise and Sales Tax Nowshera Circle wrote a letter on 18-11-2003 to the complainant for production of export record. The record was produced and copies of relevant export documents were handed over to the said officer. Since by that time a certificate dated November 4, 2003 confirming the export of 2,640 tons of cement from Pakistan to Afghanistan had been received the Consulate General of Pakistan in Jalalabad, a copy of which was also handed over to the said officer and the entire position was explained in writing.

2.5 That in spite of above stated facts the Assistant Collector vide letter, dated 20-11-2003 ordered encashment of Rs.2,640,000 against insurance guarantee executed by Messrs Adamji Insurance Company in favour of complainant, on account of central excise duty leviable on 2,640 MT of cement already exported to Afghanistan.

2.6 That in response to the letter/order of encashment of insurance guarantee the complainant brought to the notice of the Assistant Collector the fact that verification report had been received from the Consulate General of Pakistan in Jalalabad and that the entire documents confirming the export had already been submitted to the Superintendent Central Excise and Sales Tax Nowshera vide complainant's letter, dated 4-12-2003 was requested to withdraw the order of encashment of insurance guarantee but in vain.

2.7 That the complainant was facing difficulty in getting the insurance guarantee revalidated and renewed upto 31-12-2004 for future export of 25,000 tons of cement for which proper application had been moved on 23-12-2003. The acceptance of revalidation of the insurance guarantee to cover the future export was linked with the condition of payment of Rs.2,640,0000 on account of duty/taxes leviable on 2,640 tons of cement exported to Afghanistan, notwithstanding the fact that condition of verification of export from Pakistan to Afghanistan had already been fulfilled. The complainant was thus obliged to pay Rs.2,640,000 which payment was made under duress on 30-12-2003.

2.8 That the order, dated 20-11-2003 of the Assistant Collector for encashment of Insurance Guarantee to the extent of Rs.2,640,000 is contrary to law, perverse, unreasonable, unjust, biased and oppressive and amounts to "maladministration" in terms of section 2(3) of Federal Tax Ombudsman Ordinance, 2000, therefore, the instant complaint is lodged on the following grounds:

(a) No show-cause notice was issued and proper hearing was not provided to the complainant as per dictum laid down by the apex Courts. The order of encashment of insurance guarantee and subsequent recovery of an amount of Rs.2,640,000 was issued ex parte.

(b) That for export of 2,640 metric tolls of cement to Afghanistan payment in foreign currency had been received from the buyers in Afghanistan through Muslim Commercial Bank Limited, Peshawar. The cement was exported through prescribed route of Torkham and export certificate signed by the Incharge Customs Station Torkham is available on the shipping bills. This fact is on record and was in the knowledge of the department.

(c) That owing to political situation prevailing in Afghanistan due to incident of 11/9 the Consulate 'Office of Pakistan in Jalalabad was closed. Verification report regarding receipt of the consignments of cement in Afghanistan could not be obtained in time. The delay was beyond the control of the complainant. The certificate now granted is self-explanatory and was provided to the Assistant Collector. Since the case was fully explained and brought to the notice of the respondent it was as a demand of justice that encashment order should have been withdrawn as requested by the complainant. It is therefore prayed that respondent department be directed to issue refund orders of Rs.2,640,000 which was recovered illegally.

3. In reply the respondent has stated that the complainant exported 2640 MTs cement to Afghanistan on 15th and 16th September, 2001 involving zero-rated central excise duty of Rs.2,640,000. In terms of the Ministry of Commerce S.R.O. No.514(I)/2001, dated 12-7-2001 zero rating is subject to the condition that "Pakistan Embassy or Consulate in Kabul, Kandhar and Jalalabad 'shall verify the arrival of export consignments from Pakistan". However the complainant failed to furnish the requisite verification in respect of the said consignment.

3.1 In response to the audit observation, the complainant pleaded that the requisite verification could not be furnished due to closure of Embassy/Consulate of Pakistan at Jalalabad in the aftermath of 9/11 incident. However, instead of fulfilling the statutory requirements the complainant produced a letter, dated 4-11-2003 from the Consulate General of Jalalabad to the effect "that the document could not be attested/verified due to closure of the embassy but it reveals from the record of Customs Authorities at Pak-Afghan border that the subject consignments were exported to Afghanistan on 15-16 September, 2001". The requirement of verification of arrival of consignment in Afghanistan has been laid down by Ministry of Commerce therefore the said condition can only be dispensed with by said Ministry. The action of the Assistant Collector for encashment of insurance guarantee to the extent of Rs.2640,000 involved in the unqualified zero-rating export of 2640 MTs is strictly in accordance with the law.

4. The representatives of both sides attended and reiterated their contentions which have been considered and the record produced, examined.

4.1 The government allowed zero-rated export of cement and other items manufactured in Pakistan to Afghanistan and Central Asian Republics. A notification to this effect was issued by the Ministry of Commerce as S.R.O. No.514(I)/2001, dated 12-7-2001. The exporters were eligible to duty draw back on these exports provided that Pakistan Embassy or Consulate in Kabul, Kandhar or Jalalabad certified the arrival of export consignments from Pakistan. This was one of the main condition laid down in the notification.

4.2 The complainant exported 2640 metric tons of cement on 15th and 16th September, 2001. But due to the incident of September 11, 2001 the Consulate General of Pakistan in Jalalabad was closed and the complainant could not obtain and produce verification certificate. Letter on he produced a letter, dated 4-11-2003 from the Consulate General in Jalalabad, the relevant portion of which is reproduced below:

"It may be noted that have due to the prevailing situation and unavoidable circumstance after September 11, 2001, this Consulate General had to be closed and the diplomatic and other staff members were called back to Pakistan. As such no services could be provided. Hence the documents the Cherat Cement Company could not be attested/verified at that time. But it reveals from the record of the Customs Authorities at Pak-Afghan border that the subject consignments were exported to Afghanistan on 15-16 September, 2001".

4.3 The AR of the complainant contended that the complainant was a regular exporter of cement to Afghanistan. The delay production of certificate was not intentional as it was beyond his control. The letter dated 4-11-2003 from the Consulate which has confirmed the truth of the fact was furnished to concerned official on 19-11-2003 whereas the encashment order was passed by him on 20-11-2003. It was further argued that the Assistant Collector had passed the encashment order, dated 20-11-2003 without serving any show-cause notice on the complainant and thus violated the dictum laid down by the Supreme Court in case reported as 2002 SCMR 1034 = 2002 PLC (C.S.) 1083 in which it was held that the principle enshrined in the maxim Audi Aletram Partem has to be applied in all judicial and non-judicial proceedings notwithstanding the fact that the right of hearing has not been expressly provided by the statute governing the proceedings and emphasis of its application has always been made on those proceedings where adverse action is being contemplated to be taken against a person.

4.4. In view of the facts that (i) the complainant is a regular exporter of cement to Afghanistan, (ii) the delay in production of the certificate from Consulate was not wilful (iii) the customs authorities had checked the goods at the border and allowed the export without charging duty (iv) the Consulate vide its letter dated 4-11-2003 had confirmed the export of goods although at a later stage due to special circumstances and (vi) above all the Assistant Collector's had proceeded to pass encashment order, dated 20-11-2003 without serving show-cause notice on the complainant, the action of the Assistant Collector is arbitrary, unjust, oppressive and contrary to law which tails in the definition of maladministration under section 2(3)(i)(a)(b) of the Ordinance No.XXXV of 2000.

5. It is therefore recommended that:

(i) The competent authority to cancel the order of the Assistant Collector, dated 20-11-2003 and the complainant be allowed the benefits envisaged in S.R.O. No. 514(I)/2001, dated 12-7-2001.

(ii) Compliance be reported within 30 days.

M.I./290/FTOOrder accordingly.