MALIK PAPER MART, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2011 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1266 (2010)

Customs Act (IV of 1969)---

----S. 156(1)---Customs Rules, 2001, Rr.96(2)(d)(e), 102, 103 & 419---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3)(i), 9 & 10---Complaint by importers against illegal charges by Shipping Companies---Complainant had alleged that Shipping Companies/Shipping Agents were recovering illegal charges from the importers and unjustifiably and undesirably increasing the cost of doing import business to the detriment of the country's international trade---Collector of Customs being the Licensing Authority of the Shipping Agents, had failed to discharge his statutory obligations by ignoring the misconduct of Shipping Agents involved incoercive recovery of illegal, irrational and excessive charges---Customs authorities was obliged to regulate the conduct of Shipping Agents licensed by them under the Customs Act, 1969 and the relevant Licensing Rules---Not only penal action could be taken under S.156(1) of Customs Act, 1969. but also the license of the Shipping Agent, found guilty of any misconduct under the rules, could be suspended or cancelled---Removing difficulties for import and export business was a primary obligation of the Customs authorities---Problems of overcharging, double charging and unlawful charging which had assumed alarming proportions could not be leftunattended---Collector of Customs (Preventive) being the Licensing Authority was the appropriate forum for dealing with complaints against Shipping Agents, for which he had been empowered in the law and rules---Ombudsman recommended to Federal Board of Revenue to direct Collector of Customs (Preventive) to effectively regulate and control the conduct of Shipping Agents to the effect that (a) Chief Collector of Customs would examine, in consultation with the stakeholders, problems of unlawfuland unreasonable charges and coercive collection by the Shipping Agents; (b) study the situation obtaining in countries like Singapore, Malaysia etc. with regard to those charges and modes of collection thereof; (c) formulate appropriate recommendations for necessary amendments in the Licensing Rules; (d) Incorporate appropriate clauses in the terms and conditions of licences; (e) recommend to the Government to incorporate appropriate and specific provisions in the Customs Act,1969 in order to beefup the specificand general deterrence against the impugned malpractices of Shipping Agents.?

Syed Barkat Ali Bukhari, Consultant, Dealing Advisor.

Noor Muhammad, Authorized Representative.

Sanaullah Abro, Deputy Collector, Departmental Representative.

FINDING S/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---Complaint No. 462-K/2009 was fixed for hearing on 3-9-2009. Seven other complaints of identical nature were also pending with numbers C-463-K/2009, C-464-K/2009, C-465-K/2009, C-466-K/ 2009, C-467-K/2009, C-468-K/2009 and C-469-K/2009. It was mutually agreed by both the Authorized Representatives (AR) of the complainants (Mr. Noor Muhammad) and the Departmental Representative (DR) of the respondents (Mr. Sanaullah Abro, Deputy Collector Customs) that they had no objection if all the complaints were jointly decided as the issues in these complaints were the same.

2. Brief facts of the representative Complaint No. 462-K of 2009 filed by Malik Paper Mart, Karachi through Mr. Noor Muhammad are that Shipping Companies/Shipping Agents mentioned below were recovering illegal charges from the importers and thus unjustifiably and undesirably increasing the cost of doing import, business to the detriment of the country's international, trade:

3. It is also alleged that the Collector of Customs (Preventive), Custom House, Karachi being the Licensing Authority of the Shipping Agents has failed to discharge his statutory obligations by ignoring the misconduct of the Shipping Agents involved in coercive recovery of illegal, irrational and excessive charges. It is prayed that the Shipping Agents be made to refund the excessive/illegal charges collected from the petitioners. Besides, the Collector of Customs (Preventive) should take action under clause 1 of subsection (1) of section 156 of the Customs Act, 1969 against the Shipping Agents who have indulged in the aforesaid malpractices.

4. In their reply dated 4-8-2009, the Customs authorities maintain that the matters of fixation of rates for services or excess charges by the Shipping Agents fall in the jurisdiction of Shipping Rates Advisory Board (SRAB) constituted on 6-2-2001 by the Ministry of Communication. It is also stated that if the two contractual parties i.e. the importer and the Shipping Agent have any dispute regarding their contractual obligations, they could approach the courts of law to settle such issues. It is further proposed that while making a contract with theirsuppliers, the importers may get all charges including destination charges mentioned in the bills of lading, so that the Shipping Agents cannot demand any undue charges from the importers.

5. During hearing, it was stated by Mr. Noor Muhammad, the AR, that the aforesaid Complaints basically related to the misconduct of the Shipping Lines/Shipping Agents. According to him, it is laid down in Rule 419 of Customs Rules, 2001, that Shipping Companies shall issue delivery orders to the importers against bills of lading as have been filed by them. Moreover, according to the definition given in Hague Rules, 'Freight' includes all charges payable to the carrier in accordance with the "Applicable Tariff" and the "Bill of Lading". Therefore the Carrier/Shipping Company is not entitled to collect "Terminal Handling Charges" especially because the carriers' responsibility ceases with discharge of goods at the port. The AR also stated that the Shipping Agents extort collection of delivery charges which is unjustified and unlawful because the Shipping Companies bring the goods for delivery to the consignees, and so all such charges are already included in the agreed freight charges. Shipping Lines/Shipping Agents are therefore, under contractual obligation to issue delivery orders of the goods without extorting any further charges while issuing the delivery orders. He also contended that since the Karachi Port Trust (KPT) collected "wharfage' for providing basic facilities for handling of cargo/containers in Karachi Port, therefore, 'Terminal Handling Charges' collected by Shipping Lines/Shipping Agents was also unwarranted.

6. The AR further stated that some Shipping Agents were also collecting import collection charges which have been declared unlawful by' the Customs authorities themselves and their Order-in-Original was upheld by the Collector of Customs (Appeal) with the observations that money collected under dubious heads is an offence within the meaning of Rule 103 of Customs Rules 2001. It is also observed in the Order-in-Appeal that any parallel proceedings in a civil court were no bar against the proceedings by the competent Customs authorities to carry out the purposes of the Customs Act, 1969.

7. The Departmental Representative, Mr. Sanaullah Abro, Deputy Collector Customs, stated that Terminal Handling Charges were collected by Terminal Operators such as PICT, KICT and not by the Shipping Companies or Shipping Agents. The Terminal Operators are licensees of KPT. The charges were collected against the services of handling cargo at the seaport in the specified areas leased out by KPT to the Terminal Operators. The Customs Authorities could not take cognizance of these charges as these were not levied under the customs law. The matter should rather be taken up with the Shipping Agents Advisory Board (SRAB). He further argued that 'Delivery Order Charges' were collected by the Shipping Agents against what they claimed were their services provided to the importers. The practice was that if it was written on a bill of lading that all charges were paid, then the Shipping Agent was not entitled to receive the aforesaid delivery order charges. On import collection charges, the DR stated that pursuantto the Recommendations by the honourable FTO in Complaint No.205 of 2008, the Customs Authorities had issued a show-cause notice to the Shipping Agents and after hearing them the case was decided against the Shipping Agents. This adjudication order was upheld in the first appeal before Collector Customs (Appeal). However, the Shipping Agents had challenged this decision in the Customs Appellate Tribunal inter alia on the ground that the Licensing Authority and the Appellate Authority had exceeded their jurisdiction by entering into a private dispute between the importers and the Shipping Agent.

8. The DR also stated that the Customs Licensing Authority was not authorized under any provision of the Customs Act, 1969 and the Rules made thereunder to determine the genuineness of any charges being collected by the Shipping Agents against the services rendered by them. He further argued that Rule 419 of the Customs Rule, 2001 was not related with the determination of charges and rates. Therefore, cognizance of any matter relating to such charges could not be taken under the customs law as these charges fell under the jurisdiction of the Shipping Rates Advisory Board (SRAB) specially constituted by the Government for this purpose. He however, admitted that Customs Authorities being the Licensing Authority for Shipping Agents could take cognizance in case of violation of any provision of the Customs Law and the Customs Rules, 2001.

9. In rebuttal thereof, Mr. Noor Muhammad, AR, stated that it was not correct that only Terminal Operators charged Terminal Handling Charges; Shipping Agents were also collecting Terminal Handling Charges. According to him, neither the Terminal Operators were entitled to collect Terminal Handling Charges, nor the Shipping Agents provided any service to the importers after discharge of the goods except issuing the delivery order, which was in fact their contractual obligation. He accepted that SRAB was constituted to regulate the port-related charges, including checking of illegal extortions. But the establishment of SRAB was challenged under the Constitutional Petition No.2486 of 2003 dated 12-4-2003 on the ground that the provisions of Pakistan Merchant Shipping Ordinance were not applicable to foreign Shipping Lines. Thus SRAB could not take-off and became non-functional ab initio. The AR further clarified that it was not necessary to get "All Charges Included" specifically written on the bills of lading as the definition of 'Freight' already covered it. He also stated that the Shipping Agents plea before the Customs Appellate Tribunal about exceeding of jurisdiction by the Licensing Authority and the Collector (Appeals) was not relevant because the Customs Appellate Tribunal, Karachi, had yet to give its judgment on this issue. He therefore contended that a mere plea before a quasi-judicial forum could not be adopted as an established rule. He suggested that the Customs Department being the Licensing Authority should not shirk its statutory responsibilities. It should rather be ensured that the Shipping Agents did not exceed the terms and conditions of their contracts and agreements with business community in terms of bills of lading, etc.

10. On a query, it was clarified by the parties that SRAB had not yet issued any Shipping Agents Rules to regulate the impugned charges. Only the Customs Agents Licensing Rules, 2001 as substituted in 2009 vide S.R.O.498(I)/2009 dated 13-6-2009 were in the field. The DR however informed that the issue was of national importance and thus it was under discussion at National Trade Corridor as well as by the Ministries of Shipping and Communication and the Planning Commission. Mr. Noor Muhammad, AR, contended that the Revenue Division/Customs Department being the Licensing Authority for Shipping Agent should control the illegal actions of the Shipping Agents in the interest of the country's business and industry.

11. The complaint has been considered in the FTO Secretariat in the light of the oral and written submissions of the parties. The issue proper is whether or not the Licensing Authority (Collector Customs) is empowered under the law to take cognisance of allegations of misconduct involved in overcharging, excessive charging and extortion of unlawful charges from the business community by his licensees namely the Shipping Agents. The argument of the DR that the Customs Authorities have nothing to do with the impugned charges because these are not fixed under the Customs Act, 1969 or the Rules made thereunder is not tenable as the complaint is about the misconduct of the customs licensees who unlawfully and unjustifiably increase the cost of doing import business by coercively collecting excessive charges which hurts the international trade of the country.

12. The DR's contention that the matter falls lit the jurisdiction of SRAB is also of no legal consequence because SRAB did not take off. Even if SRAB was fully functional, it would not absolve the Licensing Authority of its independent responsibilities to regulate the conduct of licensees under the Customs Act, 1969 and the Licensing Rules. It would also be pertinent to mention that one of the main grounds of the Shipping Lines which filed the aforesaid Constitutional Petition in the High Court of Sindh against the establishment of SRAB is that the Customs Collector, being the Licensing Authority, already had the requisite regulatory role. The aforesaid Shipping Lines have, therefore, contended that establishment of another regulatory authority was not desirable. The relevant para of their "Grounds" in the aforesaid Constitutional Petition is reproduced below:--

"Grounds

(14) That the Shipping Lines including the petitioner are already regulated under the Customs Act, 1969 (Specifically the Custom House Agency License Procedure) which is in line with the International Port and Shipping Practices, and further registration/regulation by Shipping Lines through respondent No_03 (SRAB) or any other Government Department will result in malpractices and bureaucratic hurdles. Therefore, it is submitted that the respondent No.03 (SRAB) should not be usedfor regulating the pricing mechanism in. violation of internationalnorms and practices as envisaged under the WTO and NTTFC."

13. This contention of the Shipping Lines in the Constitutional Petition before Sindh High Court clearly indicates that they believe that the regulatory role assigned to SRAB already fell in the jurisdiction of the Collector Customs in his capacity as the Licensing Authority. The Hon'ble FTO has also decided Complaints.Nos.752 of 2007 and 205 of 2008 recommending that since the Shipping Agencies worked under the licence of the Collector of Customs (Preventive), it was the responsibility of the customs authorities to take notice of the avoidable difficulties faced by the importers and their agents and redress their genuine grievances.

14. In pursuance of the FTO's findings and the recommendations in Complaint No.205-K/2008 dated 28-5-2008, the Customs authorities did take cognisance of allegations of misconduct against Messrs Mega Trans Pakistan (Pvt.) Limited and the Customs decision has withstood the legal scrutiny at the first appeal stage. Filing of second appeal in that case by the Shipping Agents does not detract anything from the aforesaid positionunless the decisions of the Collector Customs and the Collector Appeals are reversed by the higher judicial fora.

15. In view of the foregoing, there appears little doubt about Customs authorities obligation of regulate the conduct of the Shipping Agents licensed by them under the Customs Act, 1969 and the relevant Licensing Rules. Not only penal action could be taken under clause No.1 in the Table of Offences and Penalties under subsection (1) of section 156 of the Customs Act 1969 the license of the Shipping Agent found guilty of any misconduct under the Rules could also be suspended or cancelled. Besides, if the system of impugned charges is found to involve elements of extortion or coercion as alleged by the complainants, it would be the primary obligation of the Licensing Authority to bring such an illegality to the' notice of the Government for necessary remedial action, including any amendment in law/rules. It may not be out of place to mention that trade facilitation is internationally recognized to be a core function of the Customs authorities, in addition to their revenue collection and regulatory functions. Therefore, removing difficulties for import and export business is a primary obligation of the Customs authorities. The Customs Licensing Rules make this obligation of Customs authorities more specific and pronounced in respect of their agents and licensees.

16. The argument of the DR that since the impugned charges are not levied under the Customs Act, 1969, the Customs Department cannot take cognizance of the disputes arising out of collection of such charges is not well-founded. The point at issue is not the levy of lawful charges, it is about the levy of unlawful and excessive charges and coercive collection thereof by the Shipping Agents who are indeed licensed by the Customs Department. Don't the Customs authorities normally attend to the importers'/exporters' complaints of overcharging or coercive collection of service fees by the Clearing Agents, who are the Customs Licensees under the same Rules as are the Shipping Agents?

17. A critical question is that if the Licensing Authority is not empowered to regulate the conduct and discipline of its licensees, who else is there to regulate them under the law? The licences given by Collector Customs are certainly not meant for free lancing. The Licensing Rules provide for regulation of the conduct and monitoring of discipline of the licensees by the Licensing Authority. The service charges and fees have to be transparent and lawful. Their collection also cannot be allowed to be excessive or coercive. Indeed, it is the fundamental obligation of the Licensing Authority to evaluate, monitor, correct and rectify the conduct and performance of its licensees in all respects involving illegality. That is precisely why the Licensing Rules include regulation of their conduct and performance of the licensees.

18. The DR's argument that no enabling powers are available to the Licensing Authority under the Customs Act, 1969 to discipline the misconduct of the Shipping Agents is also factually incorrect. The Licensing Rules clearly and sufficiently empower the Licensing Authority to refuse to renew the licence of a delinquent licensee under Rules 96(2)(d) and (e) and suspend or revoke the license under Rules 102(1)(g)(b) and (o) of Licensing Rules, 2009. In case of revocation of a license under Sub-Rules (1) of Rule 102, the Licensing Authority can forefeit the security deposit of the licensee in accordance with Sub-Rules (2) of Rule 102 of the Licensing Rules. Besides, serial 1 in the Table of Offences and Penalties under section 156(1) of the Customs Act, 1969 also empowers the Customs authorities to punish offences in cases where no specific penalty has been provided elsewhere for contravention of any rules made under the aforesaid Act.

19. In the backdrop of this clear and specific legal empowerment to regulate the conduct of the licensees, as also the serious nature of the alleged misconduct of the Shipping Agents, the Customs authorities definitely need to institutionalize their oversight function including by constituting a Stakeholders' Advisory Committee on permanent basis to oversee the misconduct of its licensees and for removal of any genuine difficulties of the business community. Such an Advisory Committee may comprise the representatives of the Federation of Pakistan Chambersof Commerce and Industry (FPCCI), Karachi Chamber of Commerce and Industry, Dryports, Shipping Agents, Clearing Agents, Terminal Operators and Freight Forwarders, besides senior Customs and KPT officials. This arrangement needs to be put in place with the mandate, inter alia, to assist the Licensing Authority to effectively monitor, evaluate and discipline the conduct of business by the Shipping Agents. The proposed Advisory Committee was also be tasked to undertake comparative studies of similar charges being paid on regional and international basis to suggest rationalization of the extent and structure of such charges, besides suggesting a credible mechanism of redressal of individual complaints. Moreover, the proposed Advisory Committee should be specifically mandated to recommend necessary changes in the law and the rules to effectively prevent and control the alleged malpractices.

Findings

20. The foregoing facts reveal that the problem of overcharging, double charging and unlawful charging has, over time, assumed alarming proportions. The complaints of extortion are also mounting. The problem also cannot be left unattended because of its serious implications in terms of cost of doing import and export business. The Collector of Customs (Preventive) being the Licensing Authority is the appropriate forum for dealing with conduct-related complaints against customs licensees i.e. the Shipping Agents for which he has been empowered in the law and the rules. He needs to exercise his jurisdiction effectively to redress these complaints efficiently. Omission to discharge such responsibilities constitutes maladministration as defined under sections 2(3)(i) and (ii) of the FTO Ordinance, 2001.??????????

Recommendations

21. Based on the foregoing facts and findings, it is recommended that in eight identical Complaints (i.e. C-462-K/2009, C-463-K/2009, C-464-K/2009, C-465-K/2009, C-466-K/2009, C-467-K/2009, C-468-K/ 2009, C-469-K/2009), the Federal Board of Revenue to direct--

(i)???????? Collector of Customs (Preventive) being the Licensing Authority to effectively regulate and control the conduct and discipline-related complaints of individual businessmen against the Shipping Agents for which the Collector has ,been duly empowered under the law and the rules;

(ii)??????? Chief Collector of Customs (South) to-

(a)?? examine, in consultation with the stakeholders, the fast accumulating systemic problems of unlawful and unreasonable charges and coercive collection thereof by the Shipping Agents for finding sustainable solutions;

(b)? study the situation obtaining in countries like Singapore, Malaysia, etc. with regard to these charges and modes of collection thereof to bench mark the practices of Shipping Agents in Pakistan;

(c)?? formulate appropriate recommendations for necessary amendments in the Licensing Rules in order to effectively protect the import and export business of the country;

(d)? incorporate appropriate clauses in the terms and conditions of licences, specifically mentioning unlawful or excessive charges and coercive collection thereof as a serious offence under the Licensing Rules; and

(e)?? recommend to the Government to incorporate appropriate and specific provisions in the Customs Act, 1969, in order to beef up the specific and general deterrence against the impugned malpractices of the Shipping Agents.

22. Compliance be reported within ninety days.

23. The F.B.R. may also actively consider proposing effective remedial measures in the Finance Bill, 2010-2011.

H.B.T./18/FTO??????????????????????????????????????????????????????????????????????????????????? Order accordingly.