ZHONGXING TELECOM PAKISTAN (PVT.) LTD., ISLAMABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 204 (2008)

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

----Ss.81 & 179(3)(5)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Provisional assessment of duty---Limitation---Goods were cleared under S.81 of the Customs Act, 1969 and finalization of assessment within stipulated period was not completed and communicated by the Department---Declaration made in the Goods Declaration attained finality and there was no justification or legal validity for deciding the classification and higher assessment on a date long after the expiry of the period---Under S.179(5) of the Customs Act, 1969, the time-limit for adjudication extended up to 31-12-2006 had expired and the Adjudicating Officer had no power to pass the adjudication order under subsection (3) or (5) of S.179 of the Customs Act, 1969---Validity---Assessment of goods released provisionally under S.81 of the Customs Act, 1969 in January, 2003 was not finalized within one year of the date of provisional assessment---Instead a show-cause notice was issued in May, 2003 without lawful authority---Recovery notice was sent arbitrarily demanding payment---Adjudication order was passed on 11-8-2008 after lapse of five years in violation of time limitation prescribed under S.179(3)(5) of the Customs Act, 1969---Adjudication order was not legally sustainable and the duty and taxes adjudged in adjudication order too were not legally tenable---Federal Tax Ombudsman recommended that Federal Board of Revenue should direct the Collector of Customs to set aside the order-in-original under S.195 of the Customs Act, 1969, quash recovery notice and finalize assessment on the basis of declarations made on the GD; to conduct an investigation of failure to finalize the assessment of goods provisionally released under S.81 of the Customs Act, 1969 within the stipulated period and the reasons for issuing an illegal show-cause notice under S.32(3) of the Customs Act, 1969 for a consignment provisionally released under S.81 of the Customs Act, 1969 be ascertained; to conduct four hearings in 2003 and 2004 but keeping the case undecided for about five years; to identify the officials responsible for the maladministration established in this investigation and take necessary disciplinary action against them under Government Servant (Efficiency and Discipline) Rules, 1973.

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

----Ss.32(3) & 81---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Untrue statement, error, etc.---Issuance of show-cause notice under S.32 of the Customs Act, 1969 in spite of the fact that consignment was released and the matter was pending for decision under the parameters of S.81 of the Customs Act, 1969---Validity---Instead of finalizing the assessment, show-cause notice under S.32(3) of the Customs Act, 1969 was issued---Said action was totally uncalled for and without legal validity---Where provisional assessment had been made under S.81 of the Customs Act, 1969, action under S.32 of the Customs Act, 1969 would not be legally tenable---Section 32(3) of the Customs Act, 1969 deals with any inadvertence, error or misconstruction for any duty or charge not levied or short-levied or erroneously refunded, the person liable to pay any amount on that account was to be served with a notice within three years of the relevant date requiring him to show-cause notice why he should not pay the amount specified in the notice---When the matter was already under process under S.81 of the Customs Act, 1969, it was not hit by S.32(3) of the Customs Act, 1969 because inadvertence, misconstruction short-levy could be detected only after assessment and not in a situation where provisional assessment was yet to be finalized---Whole process of adjudication was without lawful authority.

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

----S.179(3)(5)-Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Power of adjudication----Limitation---Under subsection (3) of S.179 .of the Customs Act, 1969, the appropriate officer was required to decide the contravention cases within 90 days of receipt of the report of the period extended by 90 days---Under subsection (5) of S.179 of the Customs Act, 1969, the time for adjudication in all cases pending on 1-7-2006 was extended up to 31-12-2006 and it was established that notwithstanding the illegality of the show-cause notice, the Adjudicating Officer had no authority to pass the adjudication order on 11-8-2008 after expiry of the extended period and more than five years after the issue of show-cause notice---Show cause notice and the adjudication order were both contrary to law and legally invalid.

M. Mubeen Ahsan, Advisor (Dealing Officer).

Afzal Awan and Imran Iqbal, Advocates.

Habib Ahmad, Deputy Collector of Customs (Appraisement).

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---The complaint has been filed against the order-in- original dated 11-8-2008 passed by the Deputy Collector of Customs, Appraisement Intelligence Branch (AIB) of the Appraisement Collectorate, ordering the enforcement of demand of Rs. 24,598,669 under section 32(3) of the Customs Act, 1969, without issuing a show-cause notice and without hearing the complainant's contention and viewpoint. It has been alleged that the issuance of this order is a decision contrary to law, it is perverse, arbitrary, unjust and oppressive, it betrays delay, incompetence, inefficiency in the administration and discharge of the duties and responsibilities of the Department, which constitute maladministration as defined under section 2 of the Federal Tax Ombudsman Ordinance, 2000.

2. Complainants stated that when they received a Recovery Notice dated 11-12-2007 for payment of Rs.24,598,669 without receiving a show-cause notice or order-in-original, their counsel sent a letter dated 30-1-2008 to the Deputy Collector pointing out that no coercive action could be taken unless the importer had been given ample opportunity to defend his case and to understand what exactly was recoverable from him and requesting him to keep the Recovery Notice in abeyance till the final decision of the case after process of hearing. There was no reply to this letter; show-cause notice was not issued but the complainants received order-in-original dated 11-8-2008. Being aggrieved on receipt of this order, the complainants filed application dated 13-8-2008 to the Collector of Customs (Appraisement) to call for and examine the records of the proceedings under section 195 of the Customs Act and satisfy himself about the legality or the propriety of the adjudication order passed by the Deputy Collector of Customs as principles of natural justice were not observed and full opportunity to defend the case was not given to them. It was requested that the case be reopened and decided afresh. However, the Collector did not reply to this letter nor did he pass a proper and legal order by exercising his authority under section 195 of the Act. It was alleged that the non-response to the applications of the complainants to the Deputy Collector of Customs AIB and to the Collector of Customs (Appraisement) was tantamount to maladministration.

3. It was requested that issuance of the order-in-original dated 11-8-2008 without issuing show-cause notice, without affording the complainants the opportunity of hearing, and lack of response to the two applications made to the Deputy Collector of Customs and the Collector of Customs be declared as acts of maladministration and the respondents be directed not to take any action under the Recovery Rules till the decision of this office and any other relief deemed fit may be allowed.

4. Deputy Collector of Customs, AIB, replied to the complaint that the application dated 13-8-2008 to re-examine the case under section 195 of the Customs Act was examined and a detailed reply was sent to the counsel vide letter dated 30-8-2008. The contention that the order-in- original dated 11-8-2008 was passed without hearing was not correct. It was stated that show-cause notice dated 21-5-2003 for recovery of Rs.24,598,669 was issued to the exporter and hearing opportunity was granted to the exporter vide letters dated 12-6-2003, 29-6-2003 and 17-1-2004. The application dated 30-1-2008 for issuing a (fresh) show-cause notice was examined. The Supreme Court of Pakistan in Writ Petition No.6490 of 1994 of Messrs Triple-M has held that second show-cause notice after three years was beyond the period of limitation and any order passed on its basis was not enforceable. Therefore, a fresh show-cause notice was not issued.

5. Deputy Collector of Customs stated that since the show-cause notice was issued in 2003 and hearing opportunity was granted the adjudication proceedings could be finalized even at a belated stage without invoking limitation. He stated that the legal obligation to call for and examine the record as requested by the complainants have been completed and there is no irregularity in the issuance of order-in- original. Since a reply to the importer's letter dated 13-8-2008 was sent on 30-8-2008, any allegation on this account was not correct since the liability has been adjudged against the importer and action under Recovery Rules has to be taken. Under section 9(2) (b) of the Federal Tax Ombudsman Ordinance, no complaint can be filed/entertained against/order decision in respect of which legal remedies of appeal review or revision are available and, therefore, the complaint be rejected.

6. It was brought out during the hearing of the complaint that the goods were released in January, 2003 under section 81 of the Customs Act against a Corporate Guarantee as directed by the Federal Board of Revenue vide letter C.1(25)Mach/98, dated 31-10-2008. The learned counsel for the complainants contended that when the notice under section 202 of the Customs Act dated 11-12-2007 was received, it was realized that recovery proceedings were initiated without any lawful order by the Customs. The learned counsel sent a letter dated 30-1-2008 to the Deputy Collector of Customs AIB for issuance of a show-cause notice because the complainants had not received the show-cause notice or order-in-original and were not aware of the hearing. The opportunity of hearing was not provided and adjudication order was passed for payment of the amount of Rs.24,598,669.

7. The learned counsel stated that the goods were cleared under section 81 of the Customs Act and finalization of assessment within the stipulated period was not completed and communicated by the Department. Therefore, the declaration made by the importer in the Goods Declaration attained finality and there was no justification or legal validity for deciding the classification and higher assessment on a date (long) after the expiry of the period. It was stated that under subsection (5) of section 179 of the Customs Act, the time-limit for adjudication extended up to 31-12-2006 had expired and the adjudicating officer had no power to pass the adjudication order under subsection (3) or (5) thereof. It was further argued that the Adjudicating Officer mentioned in para. 3 of the order-in-original that the FBR vide its letter dated 15-2-2003 had held that the goods be treated as finished assembled exchange classifiable under PCT heading 8517.5000. It was alleged that this decision was taken by the FBR without hearing the importer and giving him an opportunity to represent his case.

8. It has been pointed out that there are several factual and legal infirmities in the adjudication order such as the reported presence of Mr.M. Afzal Awan during the hearings supposedly held in 2003 and 2004 whereas the services of Mr. M. Afzal Awan were hired in January, 2008, the issue of show-cause notice in a case processed under section 81 of the Act etc. Therefore it was a fit case for the appropriate authority to reopen under section 195 of the Customs Act and, after affording opportunity to the complainant authorized representative to represent the case, decide it on merits. It was added that since the consignment was released and the matter was pending for decision under the parameters of section 81 of the Customs Act, the issue of show-cause notice under section 32 of the Act was contrary to law and without valid reasons.

9. The Deputy Collector of Customs AIB replied that the record of the Department and complainants' letter dated 3-6-2003 clearly showed that show-cause notice was received by them. The complainants Company was first asked vide letter dated 17-3-2003 to explain their position with regard to the FBR decision (about the classification) dated 15-2-2003 but they did not reply. Thereafter, show-cause notice dated 21-5-2003 was issued and hearings were conducted on 12-6-2003, 29-6-2003 and 17-1-2004 which were attended by Mr. Sultan Advocate but order-in-original was not passed. With regard to the point why hearing was not granted on receipt of letter sent in January, 2008, the Deputy Collector stated that the matter was five years old and several hearings had been conducted in 2003 and 2004 and there was no point in holding another hearing: He stated that complainants' request to reopen the case under the provisions of section 195 of the Customs Act was still pending before the Collector of Customs and the matter was not yet closed.

10. From the submissions made in the complaint, the Department's reply and arguments put forward and detailed examination of all aspects of the case during the hearing, the following significant acts of maladministration have been established from the actions taken by the Department whose cognizance has been taken by this officer under sub-section (3) of section 2 of the Establishment of the Office of the Federal Tax Ombudsman Ordinance:

(i) The goods were released under section 81 of the Customs Act against a Corporate Indemnity Bond under the direction of the FBR, which also decided the classification vide letter dated 15-2-2003. Valuation Department had already advised the Collectorate vide letter dated 15-1-2003 to finalize the value at the declared value with 5% loading. The Department should have finalized the assessment under section 81 of the Customs Act on the basis of classification and value of goods with the period specified in the subsection (2) of section 81 ibid.

(ii) Instead of finalizing the assessment, the Deputy Collector of Customs issued show-cause notice dated 21-5-2003' under section 32(3) of the Customs Act. This action was totally uncalled for and without legal validity. It is a settled law that where provisional assessment has been made under section 81 of the Customs Act, action under section 32 of the Act would not be legally tenable. Section 32(3) of the Act deals with any inadvertence, error or misconstruction; for any duty or charge not levied or short-levied or erroneously refunded the person liable to pay any amount on that account is to be served with a notice within three years of the relevant date requiring him to show-cause notice why he should not pay the amount specified in the notice. When the matter is already under process under section 81 of the Customs Act, it is not hit by subsection (3) of section 32 because inadvertence, misconstruction short-levy could be detected only after assessment and not in a situation. Thus the whole process of adjudication was without lawful authority.

(iii) It has been rightly pointed out that under subsection (3) of section 179 of the Customs Act, the appropriate officer is required to decide the contravention cases within 90 days of receipt of the report or the period extended by 90 days. Under subsection (5) of section 179, the time for adjudication in all cases pending on 1-7-2006 was extended up to 31-12-2006. It is thus established that, notwithstanding the illegality of the show-cause notice, the Adjudicating Officer had no authority to pass the adjudication order on 11-8-2008 after the expiry of the extended period (and more than five years after the issue of show-cause notice). The show-cause notice and the adjudication order were both contrary to law and legally invalid.

11. It is a case of serious maladministration where the provisions of the Customs Act have been violated with impunity. The assessment of goods released provisionally under section 81 of the Customs Act in January, 2003 were not finalized within one year of the date of provisional assessment. Instead a SCN was issued in May, 2003 without E lawful authority. Deputy Collector AIB sent a Recovery Notice vide No.VB/1464-VI dated 11-12-2007 arbitrarily demanding payment of Rs.24,598,669. After lapse of five years, the adjudication order was passed on 11-8-2008 in violation of the time-limitation prescribed under subsections (3) and (5) of section 179 of the Customs Act. The adjudication order is not legally sustainable and the duty and taxes adjudged in the adjudication order too are not legally tenable.

12. It is recommended that the Federal Board of Revenue direct the Collector of Customs:--

(i) to set aside the Order-in-Original No. 14 of 2008 dated 11-8-2008 under section 195 of the Customs Act, quash the Recovery Notice No.VB/1464/2002-VI dated 11-12-2007, and finalize assessment on the basis of declaration made on the GD;

(ii) conduct an investigation of

(a) failure to finalize the assessment of goods provisionally released under section 81 of the Customs Act within the stipulated period;

(b) the reasons for issuing an illegal show-cause notice under section 32(3) of the Customs Act for a consignment provisionally released under section 81 be ascertained, and

(c) conducting four hearings in 2003 and 2004 but keeping the case undecided for about five years;

(iii) identify the officials responsible for the maladministration established in this investigation and take necessary disciplinary action against them under Government Servants (Efficiency and Discipline) Rules 1973;

(iv) action on (i) be completed within thirty days; and

(v) compliance be reported to this office within forty-five days and,

(vi) action on (ii) and (iii) may be completed within sixty days and report sent to this office three months.

C.M.A./112/FTOOrder accordingly.