POWER LINKS VS DIRECTORATE GENERAL OF INTELLIGENCE AND INVESTIGATION, F.B.R., 2014 PTD-KARACHI-HIGH-COURT-SINDH 796 (2013)

Customs Act (IV of 1969)---

----Ss. 32(1)(2), 32-A & 196---Notification S.R.O. 575(I)/2006,dated5-6-2006, Serial No. 35-A(6)ofTable---Exemptionfromcustomsduty---Alternate Energy Development Board, certificate of---Goods in question were batteries imported for solar panels and other alternate resources of energy and authorities had imposed duty on them---Importersought exemption from customs duties and other taxes under Serial No. 35-A(6) to the table of S.R.O. 575(I)/2006, dated 5-6-2006---Validity---In serial No. 35-A (6) to the Table of S.R.O. 575(I)/2006, dated 5-6-2006, clarifications issued by Cabinet Division dated 4-4-2012, and by Federal Board of Revenue dated 12-4-2012, held the field and could not be brushed aside---Exemption on import of batteries and other equipment mentioned in Serial No. 35-A (6) to the Table of S.R.O. 575(I)/2006, dated 5-6-2006, could not be denied merely on the ground that the same had been imported separately and not with PV Modules---Clarification of Alternate Energy Development Board was issued in favour of importer whereby it had been clarified that items in question were not being manufactured locally and equipment was for dedicated use for solar energy purposes and was not to be re-exported and diverted to other uses---Shipment in question was entitled for exemptionfromcustomsdutyandsalestaxaccordingtoSerialNo.35-A(6) to the Table of S.R.O.575(I)/2006, dated 5-6-2006---High Court set aside order passed by Appellate Tribunal and all questions were answered in favour of importer and against the authorities---Reference was allowed in circumstances.

Moro Textile Mills Ltd. v. Central Board of Revenue 2007 PTD 60; D.G. Khan Cement Company Limited v. Deputy Collector of Customs 2003 PTD 986; Collector of Customs v. Fauji Fertilizer Co. Ltd. 2005 PTD 2178; Filters Pakistan (Pvt.) Ltd. v. Federal Board of Revenue 2010 PTD 2036; Shaikh Rashid Ahmed v. Assistant Collector, 2006 PTD 1207; Pakland Cement Limited v. Collector of Customs and C.E, 2008 PTD 406; Alm Traders v. Collector of Customs and others, 2008 PTD 362; Hashwani Hotels Ltd. v. Government of Pakistan 2004 PTD 901 and The Collector of Customs and Central Excise v. Rahim Din 1987 SCMR 1840 ref.

Muhammad Rafi Kamboh for Applicant.

Zain A. Jatoi for Respondent No.1.

Khalid Mahmood Dhoon for Respondent No.2.

Saeed Ahmed Memon Standing Counsel.

Ilys Ahsan, Departmental Representative of Respondent No.2 and Saud Hasan Khan, I.O. for Respondent No.1.

Date of hearing: 12th November, 2013.

JUDGMENT

MUHAMMAD JUNAID GHAFFAR, J.---Through this order we intend to dispose of the instant Special Custom Reference Application ("SCRA") filed under section 196 of the Custom Act, 1969 ("The Act") against order dated 17-5-2013 passed by the Customs Appellate Tribunal Bench II, Karachi, ("Tribunal") in Custom Appeal No.K-208 of 2013. The applicant has proposed sixteen questions of law purported to be arising out of the order of the Tribunal. However, on examination, with utmost respect, we have come to the conclusion that at the most there are only four questions of law which would resolve the controversy and as such we have decided to rephrase the same in the following manner:-

(a)Whether the consignment of batteries imported by the applicant without PV Module was entitled for exemption in terms of Serial No. 35-A of the Table to S.R.O. 575(I)/2006 dated 5-6-2006 ("The S.R.O.")?

(b)Whether the applicant was entitled for exemption on the import of batteries as referred to above on the basis of certificate issued by the Alternate Energy Development Board as required under column 5 of the table to the SRO?

(c)Whether the exemptions under the S.R.O. vide serial No.35-A (6) is also applicable to commercial importers?

(d)Whether the Tribunal erred by not remitting the redemption fine in addition to penalty while holding that no penal action could be taken against the applicant under sections 32(1)(2) and 32-A of the Act?

2.Briefly, as per statement of facts the applicant is engaged in the business of alternate resources for energy and accordingly decided to import equipment from China consisting of PV Solar Panel, Hot Water System, Power Inverters/UPS and batteries etc. It is stated that since all these equipment are not manufactured by a single company in China, therefore, the applicant imported these equipment's from different manufacturers in China and accordingly they were shipped in different consignments. It is also stated that the applicant prior to the import of instant consignment, already imported Solar Panels from another source in China. On arrival of the instant consignment of batteries the applicant filed Goods Declaration ("GD") bearing CRN No.KCSI-HC-41327 dated 26-9-2012 and sought exemption from custom duties and other taxes under Serial No. 35-A of the SRO. According to the applicant, the GD of the subject consignment was initially assessed by the Appraiser and the Principal Appraiser and the claim of the applicant for grant of exemption was regretted. However, subsequently the same was approved and granted by the concerned Deputy Collector; consequently the GD was allowed to be released after allowing the exemption under the SRO. It is further stated that after release of the consignment by the respondent No.2 and before the delivery of the same, the officers of respondent No.1 detained the said consignment within the port area and alleged that the applicant was not entitled for the exemption under the S.R.O. and had evaded duties and taxes amounting to Rs.12,65,458 and had violated the provisions of sections 19, 32(1)(2) and 32-A read with sections 79 and 80 of the Act along with sections 3, 6, 7-A and 13 of the Sales Tax Act, 1990, further read with section 148(1) of the Income Tax Ordinance, 2001, punishable under clauses (10-A), (14) and (14-A) of section 156(1) of the Act and sections 33 and 34, 36 of the Sales Tax Act, 1990. In short, thereafter, a show-cause notice was issued to the applicant and subsequently the same was adjudicated upon vide Order-in-Original No. 61347 dated 17-1-2013 whereby in addition to denial of exemption of customs duties and taxes under the SRO, the goods were confiscated and were ordered to be redeemed on payment of fine at the rate of 35% of the value of the goods in addition to a further penalty of Rs.200,000. Being aggrieved, the applicant preferred an Appeal under section 194-A of the Act before the Tribunal and the Tribunal, though maintained that the applicant is not entitled for exemption under the S.R.O., set aside the penal action taken against the applicant under sections 32(1), (2) and 32-A of the Act. However, the Tribunal while remitting the penalties did not gave any finding on the confiscation of the goods and payment of redemption fine in lieu thereof. The instant SCRA has been filed by the applicant against the said order of the Tribunal.

3.Mr. Rafiq Kamboh, the learned counsel for the applicant, contended that the instant shipment of batteries was in fact a second consignment imported by the applicant and according to the learned counsel; the respondents had not raised any objection while granting exemption under the same S.R.O. at the time of clearance of the first shipment. It was contended that in fact the Appraiser and the Principal Appraiser had initially disallowed the exemption claimed by the applicant, which was subsequently approved and granted in review by the concerned Deputy Collector and per learned Counsel the same was done after scrutiny and examination of all aspects, therefore, the respondent No.1 had no lawful authority to detain and seize the subject consignment. Learned Counsel also referred to letter No. C.No.I (56) Mach/95 dated 12-5-2012 issued by the Federal Board of Revenue ("FBR") to the field Collectorates and contended that the same, had already resolved the controversy whereby it was directed that in view of the decision of the Cabinet Division dated 4-4-2012, the batteries in questionwereeligible for the benefit of the SRO,irrespectiveofthefact that these are imported together or separately, and the exemption wasto be granted. The learned Counsel also referred to a certificate dated 7-12-2012 issued by Alternate Energy Development Board, ("AEDB") whereby it was certified that the batteries covered by the subject consignment were not locally manufactured and were dedicatedly for solar energy purposes and hence entitled for exemption from custom duties and sales tax under the SRO. The learned counsel also contended that although the Tribunal has held that no penal action could betaken against the applicant in the given facts and circumstances of the case and had also remitted the penalty imposed by the adjudicating authority, but while doing so, the Tribunal had failed to give a specific finding regarding confiscation of goods and remission of redemption fine. Per learned counsel, if no penal action could be taken against the applicant as held by the Tribunal, then the question of confiscation and imposition of redemption fine does not arise. Lastly, it was contended by the learned counsel that once a certificate was issued by the AEDB, the respondents were bound to grant the exemption under the SRO. Learned Counsel relied upon the cases of: Moro Textile Mills Ltd. v. Central Board of Revenue reported in 2007 PTD 60, D.G. Khan Cement Company Limited v. Deputy Collector of Customs reported in 2003 PTD 986, Collector of Customs v. Fauji Fertilizer Co. Ltd. reported in 2005 PTD 2178, Filters Pakistan (Pvt.) Ltd. v. Federal Board of Revenue, reputed in 2010 PTD 2036, Shaikh Rashid Ahmed v. Assistant Collector, reported in 2006 PTD 1207 Pakland Cement Limited v. Collector of Customs and C.E, reported in 2008 PTD 406, and Alm Traders v. Collector of Customs and others, reported in 2008 PTD 362.

4.Respondents Nos.1 and 2 have filed comments (though not required under section 196 of the Act) and have supported the impugned order of the Tribunal. It is stated that the exemption is only available to those goods, which are specified in the column No.2 of the Table to the SRO, subject to conditions attached to the preamble besides fulfillment of conditions specified in Column No.5 of the table to the SRO. It is the case of the respondents that the exemption is available only to PV Modules, whether imported with or without the components and as batteries cannot be called or termed as PV Module as such the same does not qualify for exemption under the SRO.

5.Mr. Zain A. Jatoi, Advocate for respondent No.1 contended that the GD filed as annexure A-3 at page 49 of the Court File, relating to import of solar panels, shows that the exemption was claimed under a different S.R.O. and HS Code 8541.5000, which even otherwise is not covered under the S.R.O. No.575(I)/2006. It was contended by the learned Counsel that the entry at serial No.35-A was subsequently amended vide S.R.O. 575(I)/2012 dated 1-6-2012 and therefore, the letter dated 12-5-2012, issued by FBR, was not applicable in the instant case. Per learned Counsel, the exemption under the S.R.O. is only available on PV Module if imported with or without any equipment and was not available on the equipments when imported separately. It was further contended that the applicant was a commercial importer and the exemption was only available to a manufacturer, as such the applicant was not entitled for exemption under the SRO. Learned counsel relied upon case of Hashwani Hotels Limited v. Government of Pakistan reported in 2004 PTD 901.

6.Counsel for respondent No.2 as well as the Standing Counsel adopted the arguments of Mr. Zain A. Jatoi. By consent of all the matter is being decided at Katcha Peshi stage.

7.We have heard both the learned counsel and have perused the record as well as the case-law cited at the bar with their assistance. It appears that the precise controversy between the parties is in respect of the exemption granted by the Federal Government to the alternate/ renewable energy sources in consultation with AEDB. It further appears that initially in view of the recommendations of the Ministry of Water and Power and the AEDB, an amendment was carried out in the S.R.O. and by insertion of Serial No.35-A, exemption was granted to several equipments/components, which qualified for the dedicated use of renewable source of energy like solar, wind, etc. The exemption to such components/equipments was however subject to certification by AEDB. The entry as relevant for the present controversy is in the following manner at Serial No.35A of the table to the SRO:-

The relevant entry in dispute for the present purposes is at sub-serial No.6 above and prior to 1-6-2012, serial No.6 read as under:--

"6. PV Modules ("along with") the related components including inverters, charged controllers and batteries." (Italics added)

8.The controversy in the instant matter can be bifurcated in two parts, for a better and clear understanding. The first part is in respect of dispute when the word used in Sub-Serial (6) of Serial No. 35A, of the table to S.R.O. was "along with", whereas in the second part, it was "with or without". It appears that prior to 1-6-2012, when the entry at Sub-Serial (6) was in its un-amended form (along with), a similar objection was raised by the field Collectorates (though not related to the present applicant) whereby the exemption on these equipment's was objected to, as the PV Modules, other equipments and batteries were being imported from different sources and as such were being shipped in different consignments. It is in the context of these objections that the matter was referred by the field Collectorates to the FBR and was also taken up by the Ministry of Water and Power for placing it before the Economic Coordination Committee ("ECC") of the Cabinet. The Cabinet Division through the Ministry of Water and Power vide its letter dated4-4-2012 addressed to the CEO of AEDB, observed and supported the contention of Ministry of Water and Power that PV Modules and related components (inverters, charged controllers and batteries) are eligible for exemption from all taxes/duties irrespective of the fact that whether or not these were imported together or separately. It was further observed that the interpretation of the words "along with" by FBR is not correct. It further appears that on the basis of this letter, the FBR vide its letter dated 12-5-2012 (annexure A/5 pg. 93) issued a clarification to all the field Collectorates including the respondent No.2 and directed that PV modules and related components i.e., inverters, charged controllers and batteries are eligible for the benefit of sub-serial (6) of serial No.35-A of the table to the SRO, irrespective of the fact that these are imported together or separately and the interpretation of the words "along with" by FBR is not correct. In view of this the FBR also observed that its clarification dated 29-6-2011 is deemed to be withdrawn ab initio. Letter dated 12-5-2012 issued by FBR is reproduced hereunder:--

"GOVERNMENT OF PAKISTAN

REVENUE DIVISION

(FEDERAL BOARD OF REVENUE)

C.No.1(56)Mach./95Islamabad, the 12th May, 2012

From:Abdul Waheed Marwat,

Secretary

To:The Collector,

Model Customs Collectorate (Appraisement),

Custom House, Karachi.

"Subject: APPLICATION OF S.R.O. 575(I)/2006 ON THEIMPORT OF SOLAR PANELS CLASSIFIED UNDER 8541.4000.

I am directed to refer to Board's letter of even number dated the 29th June, 2011 on the subject cited above and to say that the issue was referred to the Cabinet Division by the Ministry of Water and Power for placing before the ECC of the Cabinet. Cabinet Division vide letter No.PIII-3(17)-I/05 dated the 4th April, 2012 (copy enclosed) has supported the contention of the Ministry that PV modules and related components (inverters, charged controllers and batteries are eligible for the benefits of Sub-Serial (6) of 35A of S.R.O. 575(I)/2006, dated 5-6-2006, irrespective of the fact that these are imported together or separately and the interpretation of the words "along with" by FBR is not correct, hence the matter does not required to be placed before the ECC afresh.

2. In light of the Cabinet Division's views, Board's clarification dated 29-6-2011 is hereby withdraw ab-initio.

(Sd.)

(Abdul Waheed Marwat)

Secretary (Tariff-II)"

9.Therefore, by virtue of the above clarification till such time the S.R.O. was amended on 1-6-2012, there remained no dispute in so far as the grant of exemption on the PV modules as well as the related equipment's as referred above was concerned, whether imported together or separately. However, perhaps, the FBR to make things more clear carried out an amendment in serial No.35-A sub-serial No. (6) vide S.R.O. 575(I)/2012 dated 1-6-2012whereby the word "along with" was substituted by "with or without". This is the second part of the controversy. To our mind this was not at all required as the matter stood settled after clarifications from all quarters including FBR, as this reflected the intention with regard to grant of exemption on such equipment's. Although it appears, prima facie, that the said substitution of the words as above was intended to further facilitate and clarify the ambiguity, if any, in the grant of exemption to the said equipment's, however, the field Collectorates while interpreting the above amendment/ substitution held otherwise and it is for this reason that the present controversy is before us.

10.It is pertinent to mention that from the perusal of the above discussion as well as the clarifications issued by FBR and the Ministry of Water and Power, one thing is obvious, that the core issue of contention between the applicant and the respondents, has been, that since the PV Modules and the other related equipment, including batteries cannot be imported from one source, and consequently has to arrive in separate or part shipments, therefore, in that situation the exemption from customs duty and taxes is available under the S.R.O. or not. It is noticed that when Serial No 35A, Sub-Serial No. (6), was in its original position i.e. prior to 1-6-2012, these equipment's were being shipped in different and separate consignments from different sources and the objection raised at that point of time stood resolved after intervention of the Ministry of Water and Power, acting through the Cabinet Division, AEDB and FBR, and it was consensually held that, irrespective of the fact that these equipment's are shipped separately or not, the same are entitled to exemption, which was notified vide letters dated 4-4-2012 and 12-5-2012, referred to above. It is in this context of the controversy and the clarification, that the present issue is to be resolved and not otherwise. The simple reason being, that while interpreting the exemption notification, the intention and history behind such grant of exemption is also to be kept in mind. It is also the duty of the court to see that in such cases the interpretation must not be narrow and pedantic; rather the courts effort should be to interpret it in a manner which shall meet the ever changing requirement of the trade and industry. It is also a fundamental principle of interpretation that the court shall strive in search of that interpretation which advances the cause of justice and so also suppresses mischief. It is not disputed, that the Federal Government had the intention to grant exemption to these alternate energy sources and for this purposes exemption to certain equipment's was granted for the first time vide S.R.O. 287(I)/2011 dated 30-3-2011 (see PTCL 2011 St. 1088) by insertion of Serial No. 35-A, to the table to the SRO. All along the Ministry of Water and Power and AEDB had endeavored for the grant of such exemption. The objection of the field Collectorates raised in the first part of the controversy, as stated above, stood resolved at their insistence and even FBR acted on such recommendations by issuing its letter dated 12-5-2012. The intention of the Federal Government was clear that the exemption is to be granted on such equipment's whether imported separately or together. Therefore, when FBR drafted its amendments through S.R.O. 575(I)/2012 dated 2-6-2012, whereby the words "along with" was substituted with "with or without", it failed to notice and take measures so as to further facilitate the trade by incorporation of clear and unambiguous words while carrying out such amendment, keeping in mind the previous history and issue as it is an admitted fact that such amendment was being carried out in furtherance of the earlier recommendations/directives of the Ministry of Water and Power and AEDB, otherwise the same was not required at all. Therefore, we are of the view, that even after the substitution of the word "along with" with "with or without" in Sub-Serial (6) of Serial No.35A to the table to the SRO, the clarification issued by Cabinet Division dated 4-4-2012 and FBR dated 12-5-2012 will still hold field and cannot be brushed aside in the manner as is being interpreted by the respondents. It is therefore held that the exemption on the import of batteries and other equipment's mentioned at Sub-Serial (6) of Serial 35A of the table to the S.R.O. cannot be denied merely on the ground that these have been imported separately and not with the PV Modules. Consequently question (a) is answered in the affirmative in favour of the applicant and against the respondents.

11.This now brings us to the second question. It is not denied that the requisite certification of AEDB has been issued in favour of the applicant and is available as (Annexure A/13 pg. 89), whereby it has been certified that the said items are not being manufactured locally and the said equipment is for the dedicated use for solar energy purposes and will not be re-exported and diverted to other uses. It has been further stated that this shipment is entitled for exemption from customs duty and sales tax according to S.R.O. 575(I)/2006 dated 5-6-2006 against Serial No 35A(6). The relevant Serial No 35A has already been reproduced at Para 6 above, and the only condition in Column 5 is that the applicant is entitled to such exemption subject to certification by Alternate Energy Development Board (AEDB) Islamabad, which has been produced by the applicant. It is also pertinent to note that such certification has been issued after the amendment carried out on 1-6-2012 and AEDB was conscious of the fact that the shipment of batteries has been made without other equipment's including PV module. Therefore question (b) is also answered in the affirmative in favour of the applicant and against the respondents.

12.In so far as the third question is concerned, we are surprised to note that in fact this was not the case of the respondents from the very beginning i.e. no such allegation or objection was alleged in the show-cause notice and consequently no finding is available in the order-in-original as well. However, it seems that when the respondent No 1 filed its comments before the Tribunal in response to the appeal of the applicant, this objection was raised to the effect that the applicant is registered as a commercial importer and hence is not entitled to the benefit of the said S.R.O. as they are neither manufacturers nor specifically engaged in assembling of PV Module (solar panel system). It is on this assertion of the respondent No. 1 that the learned Tribunal has given its finding on the matter. At the outset, we may observe, that this issue was not required to be adjudicated by the Tribunal as at the very first instance, neither there was any allegation in the show-cause notice nor any finding in the order-in-original on this issue and it is a settled proposition that the case of the department cannot go beyond the scope of the show-cause notice. If any authority is needed one may refer to the case of The Collector of Customs and Central Excise v. Rahim Din reported in 1987 SCMR 1840. However, since it has been decided by the Tribunal and therefore becomes a question of law arising out of the order of the Tribunal in terms of section 196 of the Act, we would answer it. The Tribunal has given a very categorical and definite finding that the applicant is neither an, assembler nor a manufacturer merely on the basis of the Sales Tax Registration issued by FBR, and hence the benefit of the S.R.O. is not admissible to a commercial Importer. We are afraid this finding cannot be sustained as it has not referred to any of the conditions stipulated in the S.R.O. whereby it can be said that this exemption is only available to a manufacturer or an assembler and not to the applicant (commercial importer). The learned counsel for the respondent did referred to clause (ii) of the S.R.O. which is a general clause and is applicable to all such persons who are claiming benefit of the S.R.O. and tried to argue that the Chief Executive or the head of the company has to certify in the prescribed manner and format that the imported items are the Company's bona fide requirement. We are afraid even this condition does not categorically require that the applicant has to be registered as a manufacturer or assembler. The only condition which has been imposed is at Column No. 5 of the table to the S.R.O. and we have already discussed the same (see Para 10), and are of the view that once the condition at Column 5 has been fulfilled the applicant is entitled to the benefit of the S.R.O. We have also noticed that the S.R.O. grants exemption to various other categories of machinery and equipment, and the Federal Government, wherever it has deemed fit and necessary, has imposed restrictions, and such restriction also include that the exemption against that Serial No. is only available to a certain category of Importer and or manufacturer. Even it has been so stated that such goods cannot be sold in the market for a period of 5 years from the date of such import (see S. Nos. 36 and 39, and the list goes on). We have perused the S.R.O. and are of the view that in so far as Serial No. 35A is concerned, there is no such restriction. Therefore we will answer question (c) in negative in favour of the applicant and against the respondents.

13.The last question has arisen because of the reason, that the Tribunal after a detailed discussion and relying upon various judgment of this Court and the Lahore High Court came to the conclusion that the penal action taken under the provisions of sections 32(1), (2) and 32A of the Act is held to be void and therefore penalties imposed there under are remitted. However, while holding so the Tribunal (due to a bona fide error, we may say so) has not given any finding on the confiscation of goods and imposition of redemption fine in lieu of confiscation. The learned counsel for the respondent No. 1 could not convincingly justify the order of the Tribunal on this issue and also informed that the respondent No. 1 has not preferred any reference application against the order of the tribunal. We are of the view that perhaps the Tribunal has fallen in error and should have also set aside the order of confiscation and imposition of redemption fine, as once it is held that penal action taken against the applicant is not sustainable, then by default the order of confiscation is also to be set aside and cannot be simultaneously sustained. Therefore the confiscation of goods is not justified and is hereby set-aside and the redemption fine imposed in lieu of confiscation is hereby remitted. Therefore, question (d) is also answered in affirmative in favour of the applicant and against the respondent.

14.In, view of the above discussion; all the questions are answered in the affirmative, in favour of the applicant and against the respondents. The instant reference application is allowed and the impugned order passed by the Tribunal is set aside. The Registrar is directed to send copy of this judgment under the seal of the court to the Tribunal for information.

MH/P-5/SindhReference allowed.