SALMAN TIN MERCHANT, KARACHI VS COLLECTOR OF CUSTOMS, KARACHI, 2014 PTD-KARACHI-HIGH-COURT-SINDH 438 (2013)

Customs Act (IV of 1969)---

----Ss.80 & 81---Import of Silicon Steel Sheets secondary quality---Release of such goods after making provisional assessment on submission of postdated cheque for difference of duty/taxes while sendingitssamplesbyAuthoritytolaboratory for confirmationofitsphysicaldescription---Issuanceoflaboratoryreporton8-3-2007and issuance of show-cause notice on 16-11-2007 to importer by Authority---Validity---Authority had retained postdated cheque subject to finalization of provisional assessment---Had impugned assessment been made under S. 80 of Customs Act, 1969, then Authority would have not demanded postdated cheque nor would have been justified to send such samples for verification of its physical description---Impugned assessment had been done under S. 81, but not under S. 80 of the Act----Authority was required to finalize assessment within six months from date of provisional assessment after having received laboratory report within such time---Authority had issued show-cause notice after period of six months without finalizing initial assessment---Provisional assessment made on basis of goods declaration made by importer in such circumstances had attained finality---Importer was entitled to release or discharge of postdated cheque issued by it.

Messrs Hassan Trading Company v. Central Board of Revenue, Government of Pakistan, Islamabad and others 2004 PTD 1979; Messrs Dewan Farooque Motors Ltd., Karachi v. Customs, Excise and Sales Tax Appellate Tribunal, Karachi and others 2006 PTD 1276; Sus Motors (Pvt.) Ltd., Karachi v. Federation of Pakistan and others 2011 PTD 235 and Collector of Customs (Appraisement), Karachi v. Auto Mobile Corporation of Pakistan, Karachi 2005 PTD 2116 rel.

Sattar Silat for Applicant.

Ghulam Haider Shaikh for Respondent.

Date of hearing: 19th November, 2013.

ORDER

MUHAMMAD JUNAID GHAFFAR, J.---Through this common order, we intend to dispose of all five Special Custom Reference Applications ("S.C.R.A")filed under section 196 of the Customs Act, 1969(hereinafterreferredtoas"the Act")againsttheorderdated17-11-2009 passed by the Customs, Sales Tax and Federal Excise Appellate Tribunal Bench-I, Karachi.

2.Since all these reference applications are identical in all material respects, as they are against identical, though separate orders of the Appellate Tribunal in respect of different shipments, as such all these reference applications are being heard and decided together, but for reference the facts and questions of law as agitated in S.C.R.A. No.117 of 2010 are being discussed and answered. The following questions are said to have been arisen from the order of the Tribunal and have been proposed by the applicant for the opinion of this Court:--

(i)Whether the respondent having failed to finalize the assessment of the consignment imported by the applicant within the stipulate period provided under subsection (2) of section 81 of the Customs Act, 1969 the provisional assessment attained finalist and to be treated as final assessment resulting in the entitlement to release of the postdated cheque furnished by the applicant in favour of the respondent? The applicant respectfully prays for an answer in affirmative.

(ii)Whether the Ad hoc amount deposited by the applicant through postdated cheque to meet differential in case of final assessment by respondent became returnable to the applicant irrespective of the issuance of a show-cause notice under section 32 of the Customs Act, 1969? The applicant respectfully prays for an answer in affirmative.

(iii)Whether the respondent was under a legal obligation to finalize the assessment under section 81 of the Customs Act, 1969 and to issue a notice under section 81 of the Customs Act, 1969 if at the time of finalization of the assessment it was discovered that the goods imported by the appellant did not conform to the description of the imported goods? The applicant respectfully prays for an answer in affirmative.

(iv)Whether the impugned order of the Hon'ble Appellate Tribunal does not conform to the requirements of a judicial / quasi-judicial order and is violative of the mandatory requirement contained in section 24A of the General Clauses Act, 1897? The applicant respectfully prays for an answer in affirmative.

(v)Whether the burden to prove that the consignments imported by the appellant are plain carbon steel as against silicon steel sheets secondary quality is on the department and if so whether the department has failed to discharge the burden of proof? The applicant respectfully prays for an answer in affirmative.

(vi)Whether the impugned order of the Hon'ble Appellate Tribunal is contrary to the facts and records of the case? The applicant respectfully prays for an answer in affirmative.

3.Mr. Sattar Silat, learned counsel for the applicant, while arguing the instant reference application submitted that he will only be pressing questions Nos.1 and 5, as according to the learned counsel, both these questions are questions of law arising out of the order of the Tribunal and cover the entire controversy in hand. However, when the attention of learned counsel for the applicant was drawn to question No.5, which according to us, was purely a question of fact and hence could not be taken up by this Court under its advisory jurisdiction, the learned counsel for the applicant, candidly conceded not to press it and submitted that he will be satisfied if only, question No.1 is answered by this Court. Since, according to us, this question was not properly framed, accordingly, we have rephrased the said question as follows:--

(1)"Whether the provisional assessment made by the respondent was finalized within the period as stipulated under subsection (2) of section 81 of the Act",

(2)Whether on such failure, the provisional assessment stood finalized as a final assessment, consequently entitling the applicant to have the postdated cheques discharged?"

4.Briefly, the facts as per the statement of the case are that the applicant imported a consignment of Silicon Steel Sheets secondary quality from Canada. Onarrivalofthegoodstheapplicantfiledagoods declaration (hereinafter referred to as "G.D.") under HS Code 7225.1900 chargeable to Customs Duty @ 5%, Sales Tax @ 15% and Income Tax @ 6%. It is further stated that on physical examination of the goods the description was not specifically confirmed and accordingly samples were drawn and sent to Dr. A. Q. Khan Research Laboratories, Rawalpindi for confirmation of actual description and in the meantime the imported goods were released on submission of postdated cheques for the differential amount of duty and taxes. According to the case of the applicant such assessment was done in terms of section 81 of the Act on or about 24-11-2006. Subsequently, test report dated 8-3-2007 was received from Dr. A. Q. Khan Research Laboratories, Rawalpindi and it was confirmed that the imported goods were found to be plain carbon steel and not silicon steel sheets. Subsequently, on or about 16-11-2007 a show-cause notice was issued to the applicant in terms of section 32(1) of the Act punishable under clause 14 of section 156(1) of the Act. This show-cause notice was adjudicated upon vide Order-in-Original No.11 of 2008 dated 15-5-2008 and the short levied amount of duty and taxes were ordered to be recovered from the applicant. The applicant, thereafter, preferred an appeal against the said Order-in-Original before the Customs Tribunal and the said appeal was also dismissed which has been impugned in the instant reference application.

5.Mr. Sattar Silat, learned counsel for the applicant contended that the Customs Tribunal erred in law and facts while deciding the appeal of the applicant as according to the learned counsel it was not appreciated by the Tribunal that the consignment at the very first instance was assessed and released under section 81 of the Act provisionally, whereafter the provisional assessment was not finalized within the period stipulated therein and as such the provisional assessment (i.e.) the declared assessment) stood finalized in view of subsection (4) of section 81 of the Act. It was further contended that the plain reading of the show-cause notice available at page-29 confirms the contention of the applicant that the assessment was made provisionally under section 81 of the Act as according to learned counsel it is an admitted fact that postdated cheques were obtained by the respondent at the time of the assessment of the goods. It was further contended that such fact is also reflected from the G.D. assessed by the respondent as the particulars of the postdated cheques and its date of expiry are also endorsed on the face of the G.D. Learned counsel further contended that this Court has already settled the question of law proposed in the instant reference applications through various judgments reported in 2004 PTD 1979 (Messrs Hassan Trading Company v. Central Board of Revenue, Government of Pakistan, Islamabad and others), 2006 PTD 1276 (Messrs Dewan Farooque Motors Ltd., Karachi v. Customs, Excise and Sales Tax Appellate Tribunal, Karachi and others), and 2011 PTD 235 (Sus Motors (Pvt.) Ltd., Karachi v. Federation of Pakistan and others).

6.Conversely, Mr. Ghulam Haider Shaikh, learned counsel for the respondent, though initially argued that in the instant matter the assessment was not made provisionally under section 81 of the Act, and rather, it was done under section 80 of the Act, and consequently this was a case of mis-declaration for which a show-cause notice was rightly issued under section 32(1) of the Act. Learned counsel further contended that since the assessment was not made under section 81 of the Act, as such, question of attaining finality after expiry of stipulated period for such assessment does not arise. However, when it was pointed out to the learned counsel that the show-cause notice itself states that the assessment was made after obtaining postdated cheques from the applicant and such fact is also reflected on the face of the G.D., learned counsel for the respondent conceded that on such examination of the documents, it appears prima-facie that the assessment was done under section 81 of the Act, and not under section 80 of the Act. However, learned counsel though, unable to distinguish the judgments already passed by this Court as stated in Para-5 above, referred to subsection (2) of section 81 and subsection (5)(b) of section 32 of the Act, and contended that this was a case of mis-declaration of description, and as such a show-cause notice was validly issued by the respondent. It was further contended by the learned counsel that based on these submissions, the show-cause notice was rightly issued in terms of section 32 of the Act, and the Tribunals findings were correct in law and no interference was required by this court, as such it was prayed that the questions raised in the instant reference application be answered in favour of the respondent.

7.We have heard both the learned counsel for the parties and have perused the record as well as the case law relied upon by the learned counsel for the applicant.

8.It appears prima facie that the consignment covered through the instant reference applications was assessed in terms of section 81 of the Act as show-cause notice issued subsequent to the clearance of the consignment categorically states, that at the time of physical examination the description of silicon steel sheets could not be specifically confirmed and accordingly representative samples were drawn and sent to Dr. A. Q. Khan Research Laboratories, Rawalpindi for confirmation of actual description and the imported goods were released on production of postdated cheques for the difference of duty and taxes. We have also examined the G.D. and on careful examination it transpires that there is an endorsement to the effect that a postdated cheques as well as indemnity bond was submitted by the applicant and it was retained by the respondent subject to finalization of the provisional assessment. Further, if an assessment is done under section 80 of the Act, then apparently the respondent was not required to demand or obtain a postdated cheque and neither there was any justifiable reason for sending the good to the laboratory for confirmation of the physical description or otherwise. Therefore, on the basis of these documents, and facts already on record, we are of the opinion that the assessment in the instant case was done under section 81, and not under section 80 of the Act. It would be advantageous to reproduce the provisions of section 81 of the Act as it stood at the relevant time:--

"[81Provisional determination of liability.---(1) Where it is not possible for an officer of Customs during the checking of the goods declaration to satisfy himself of the correctness of the assessment of the goods made under section 79, for reasons that the goods require chemical or other test or a further inquiry, an officer, not below the rank of Assistant Collector of Customs, may order that the duty, taxes and other charges payable on such goods, be determined provisionally:

Provided that the importer, save in the case of goods entered for warehousing, pays such additional amount on the basis of provisional assessment for furnishes bank guarantee or a post-dated cheque of a scheduled bank along with an indemnity bond for the payment thereof as the said officer deem sufficient to meet the likely differential between the final determination of duty over the amount determined provisionally:

Provided further that there shall be no provisional assessment under this section if no differential amount of duty and tax is paid or secured against bank guarantee or post-dated cheque.

(2)Where any goods are allowed to be cleared or delivered on the basis of such provisional determination, the amount of duty, taxes and charges correctly payable on those goods shall be determined within nine months of the date of provisional determination:

Provided that the Collector of Customs may, in circumstances of exceptional nature and after recording such circumstances, extend the period for final determination by not more than ninety days.

(3)On completion of final determination, the amount already paid or guaranteed shall be adjusted against the amount payable on the basis of final determination, and the difference between the two amounts shall be paid forthwith to or by the importer, as the case may be.

(4)If the final determination is not made within the period specified in subsection (2), the provisional determination shall, in the absence of any new evidence, be deemed to be the final determination.

Explanation.---Provisional assessment means the amount of duties and taxes paid or secured against bank guarantee or post-dated cheque.]"

(The period of nine months mentioned in subsection (2) was reduced to six months w.e.f. 1-7-2007)

9.From the perusal of the above, it could be seen that when it is not possible for the Officer of Customs, during the checking of the G.D. to satisfy himself as to the correctness of the declaration made by the Importer for reasons that the goods require a chemical or other test or a further enquiry, the appropriate officer may order that the duty, taxes and other charges payable on such goods be determined provisionally. It is further provided that such provisional assessment could only be made once a security for the differential amount of duty and taxes has been furnished to meet the likely differential between the final determination of duty over the amount determined provisionally. It is further provided in subsection (2) that where any goods are allowed to be cleared or delivered on the basis of such provisional determination, the amount of duty, taxes and charges payable on those goods shall be finally determined within six months (the period was nine months prior to June, 2007) of the date of provisional determination. It is further provided that in circumstances of exceptional nature this period for final determination could be extended for further ninety days, however, this is not presently relevant. In subsection (4) of section 81 of the Act, it is provided that if the final determination is not made within the period specified in subsection (2), the provisional determination shall in the absence of any new evidence, be deemed to be the final determination.

10.The above provisions of section 81 of the Act, the implication of the failure of the respondent to finalize the provisional assessment within the stipulated period and its consequences have been dealt with in a number of judgments of this Court. The first of such judgments is in the case of Messrs Hassan Trading Company (supra), in which a Division Bench of this Court has held as under:--

". . . . . . . . However, in view of the provisions of sections 32 and 81 of the Customs Act, the Customs Department was under a legal obligation to finalise the assessment under section 81 and to issue a notice under section 81 if at the time of finalisation of the assessment it was discovered that the goods imported by the petitioners did not conform to the description of the imported goods. On failure of the Customs Department to proceed in accordance with the provisions of section 81 of the Customs Act, the provisional assessment attained finality after the expiry of the period of 270 days which conferred a right on the petitioners to get the imported goods cleared on the value/price declared by them.

For the foregoing reasons and upon the above discussion, it is absolutely clear that the Customs Authorities had failed to make compliance of the provisions of section 81 of the Customs Act as they failed to make final assessment within the maximum period of 270 days as provided by subsection (2) and the proviso thereto of section 81, as a result of which the provisional assessment attained finality. This Constitutional petition was found to have force and by a short order, dated 11-3-2004 it was allowed in terms of the reliefs sought by the petitioners for reasons to be recorded later. The provisional assessment was to be treated as final assessment and the petitioners were entitled to release of the bank guarantee furnished by them in favour of the Collector of Customs. These are the reasons for the said short order."

11.Similarly, in the case of Collector of Customs (Appraisement), Karachi v. Auto Mobile Corporation of Pakistan, Karachi (2005 PTD 2116), another Division Bench of this Court, speaking through Justice Anwer Zaheer Jamali (as his Lordship then was),has held as under:--

"In other words, subsection (4) to section 81 is a penal provision incorporated in the Scheme for the benefit of Assessee Importers/Exporter to save them from unnecessary harassment by the Customs authorities by way of lingering on their cases for indefinite period on the pretext of finalizing the assessment. When the practical working of scheme of provisional assessment, as provided under section 81 of the Act of 1969 is analyzed, it will be seen that the figure of provisional assessment de notes figure of levy of duty on the basis of value declared by the importer/Exporter plus any reasonable percentage of loading over such declared value made by the Assessing Officer to secure any excess payment of duties/charges which may be found duein addition to the duty levied on the declared value of the goods at the time of final assessment within the period stipulate by subsection (2) to section 81. It is such excess payment of duties/charges levied on the basis of loading, which are secured by charging additional amount or furnishing of guarantee of schedule bank. Thus, it is apparent that charging of such additional amount or furnishing of guarantee is subject to terms of final assessment and not otherwise. In other words, when no final assessment is made in terms of subsection (2) to section 81, the provisional assessment will become final at declared value of goods by the Assessee and disbursement of additional amount or guarantee furnished by the Importer / Exporter, in terms of subsection (3) to section 81, will be regulated on such premises."

12.Subsequently the ratio of this judgment has been followed by another Division Bench of this Court in the case of Messrs Dewan Farooque Motors Ltd., Karachi (supra), wherein the following question of law was referred for opinion of this court:--

"(1)Whether the provisional assessment made under section 81(2) of the Customs Act, 1969, which became final under section 81(4) of the Customs Act, 1969 on expiry of statutory period could include 5% loading charges on declared value by the assessee?"

And while answering the above question, this Court has held as under:--

"The admitted position in the present case also appears to be that the Customs Authorities have failed to finalize the assessment of the respondent goods within the stipulated period as provided in subsection (2) to section 81 of the Customs Act, 1969. Consequently, the provisional assessment made by the Custom Authorities on the basis of declared value has attained finality. The ad hoc amount to meet the differential in case of final assessment thus became refundable to the appellant. It is therefore, held that department is liable to refund the amount representing 5% loading over and above the declared value to the appellant. The question of law is answered in negative."

13.In so far as the last judgment in the case of Messrs Sus Motors (Pvt.) Ltd., (supra) relied upon by the learned counsel for the applicant is concerned, we have noticed that the facts of the same are materially different from the instant case, as it pertains to the system of online electronic filing of G.D., in which the concept of self-assessment is involved, whereas the instant case pertains to manual assessment by the officers of the respondent, as such we would not like to discuss the same for reasons as stated above, though the legal issue decided is identical in nature.

14.Now adverting back to the facts of the instant reference application, it has been noticed that the provisional assessment in respect of the instant reference application and other connected matters were made as follows:--

15.From the perusal of the above, it is apparent, that even if the period of limitation is taken as nine months, (though, speaking for ourselves it is apparently six months) the final assessment was not even done within the extended period of limitation i.e. nine months. In fact no reason has been stated as why the show-cause notices were issued so belatedly after the receipt of report from the laboratory. The learned counsel appearing for the respondent was unable to controvert the date of assessment, date of issuance of laboratory report dated 8-3-2007 and the issuance of show-cause notice dated 16-11-2007. In all these cases the assessment was required to be finalized within a period of six months from the date of provisional assessment and even though the respondent-department had received the test report within the period of such limitation in not less than 3 cases as mentioned at S. Nos.1 to 3, above, but unfortunately failed to either issue a show-cause notice or finalize the provisional assessment as required under the law within the stipulated period. Not only this, for reasons best known to respondent-department the show-cause notice was issued after expiry of such limitation. Consequently, as stated earlier, we are of the opinion that the initial assessment was made under section 81 of the Act, but was not finalized within the stipulated period as required under subsection (2) of section 81 of the Act, therefore, the provisional assessment made on the basis of the declaration made by the applicant, has attained finality and consequently question No.1, as reframed above, is answered in the negative in favour of the applicant and against the department. Consequently, the applicant is entitled for release/discharge of the postdated cheques submitted/deposited at the time of such provisional assessment, and therefore the question No.2 as above is answered in affirmative, in favour of the applicant and against the respondent.

16.In view of the above, the impugned order passed by the Customs Appellate Tribunal stands modified accordingly. A copy of this judgment shall be sent to the Customs Appellate Tribunal for information. Order accordingly.

SAK/S-121/KAnswer in affirmative.