Haji ABDUL RAZZAQ KHAN VS FEDERATION OF PAKISTAN through Secretary, 2014 PTD-LAHORE-HIGH-COURT-LAHORE 883 (2014)

Import Policy, 2013---

----Cl. 4, proviso---Notification S.R.O. 193(I)/2013, dated 8-3-2013---Constitution of Pakistan, Art. 199---Constitutional petition---Violation of import policy---Grievance of petitioner was that he lawfully imported vehicle in question but authorities had illegally seized the same---Validity---After change in Import Policy vide S.R.O. 193(I)/2013, dated 8-3-2013, letter of credit could not be amended by bank for import of vehicles which were older than five years, as the same would be in violation of Import Policy, 2013---Petitioner did not place on record any document with regard to alleged enhancement of letter of credit dated 23-1-2013---Authorities had made seizure in accordance with law and facts of the case---High Court declined to declare that vehicle in question had been imported under letter of credit dated 23-1-2013---Petition was dismissed in circumstances.

Messrs S.T. Enterprises through Proprietor v. Federation of Pakistan through Secretary, (Revenue Division/FBR) Islamabad and 4 others 2009 PTD 467 and Messrs Zeb Traders through Proprietor v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 3 others 2004 PTD 369 distinguished.

Mian Abdul Ghaffar for Petitioner.

Ch. Muhammad Zafar Iqbal for Respondents.

Zahid Saleem Mirza, Senior Intelligence Officer.

Muhammad Ilyas Intelligence Officer.

ORDER

SHEZADA MAZHAR, J.---The present writ petition has been filed with the request to declare that the seizure by respondent No.6 of Hino Trucks imported by the petitioner on the basis of letter of credit dated 23-1-2013, which were cleared by respondent No.4 vide GD No.LDRY-HC-194 dated 21-9-2013 on payment of leviable duty and taxes, is illegal, void, arbitrary, mala fide, without jurisdiction and of no legal effect. It is further prayed that respondents Nos.3 and 6 be directed to release the imported vehicle forthwith as respondents Nos.3 and 6 have no authority or jurisdiction to intercept or seize the duly imported vehicle.

2.The facts necessary for the adjudication of the controversy in hand are that the petitioner entered into a binding Exclusive Agency Agreement dated 9-1-2013 with one Messrs Al-Waris Auto Spare Parts, TR L.L.C., Dubai (UAE) for import of 2000 units used Trucks/ Sprinkler Lorries. The said agreement was duly registered with Meezan Bank on 14-1-2013, the supplier abroad issued Performa Invoice dated 11-1-2013 and in pursuance thereof an application dated 11-1-2013 for establishment of irrevocable documentary credit was filed with Meezan bank and accordingly, as requested vide letter dated 18-1-2013, letter of credit was established on 23-1-2013 for the initial value of US $ 200,000 against 110% cash margin. Later on agreement dated 9-1-2013 was amended vide addendum dated 26-1-2013 authorizing the petitioner to enhance the amount of L/C with additional amount of US $ 200,000 in such manner that when the consignment of Trucks/Sprinkler Lorries for the initial amount of US $ 200,000 was exported and the amount was exhausted, it would automatically replete with fresh transacted amount of US $ 200,000 for further export consignments out of 2000 agreed number of Sprinkler Lorries.

3.On the basis of aforesaid agreement and letter of credit, the petitioner imported Trucks/Sprinkler Lorries which were being cleared by the custom authorities and till date more than 500 vehicles have been cleared by respondent No.4, which also included old and used Hino Truck/Sprinkler Lorry having Chassis No.FDIJKB-10494, Model 1997 which was imported vide commercial invoice dated 15-9-2013 and was cleared vide GD No.HDRY-HC-194 dated 21-9-2013 on payment of leviable duties and other charges. The aforesaid Hino Truck was intercepted by respondent No.6 on 9-12-2013 while it was being transported from Karachi to Rawalpindi and seized on the allegation that it was older than 5 years and imported in violation of the Import Policy Order, 2013 where under such vehicles, older than 5 years, cannot be imported. The petitioner informed respondent No.6 that the aforesaid vehicle was imported on the basis of letter of credit dated 23-1-2013 which was protected vide Proviso to Para-4 of the Import Policy Order, 2013 and that it was cleared and out of charged by respondent No.4 on payment of duty and taxes leviable thereon under the law. However, respondent No.6 did not agree to the contentions submitted by the petitioner and therefore, the vehicle was seized and the matter was referred for adjudication to respondent No.5, hence, the present writ petition.

4.Learned counsel for the petitioner submits that the import of Trucks/Spraying or Sprinkler Lorries falling under HS Code 8705.9000 was allowed without any age limit subject to certification by a recognized pre-shipment company listed at Appendix-H of the Import Policy Order to the effect that the said lorries,

(a)complaint with Euro-II standard

(b)in accordance with the original manufacturer specifications and

(c)has a useful productive life vide clause (iv) of Serial-10 of Appendix-C to Paragraph-5 (A)(vii) of the Import Policy Order, 2009 issued vide SRO-766(I)2009 dated 4-9-2009.

Submits that respondent No.1 vide S.R.O. 193(I)/2013 dated 8-3-2013, promulgated new Import Policy Order, 2013, whereunder the import of Trucks/Spraying Lorries or Sprinklers Lorries falling under HS code 8705.900 not older than 5 years is allowed subject to same conditions as mentioned in the earlier imported policy, however, vide Proviso to Para-4 of the Import Policy Order, 2013, it was mentioned that the said amendments shall not be applicable to such imports where Bill of Lading or letter of credit was issued or established before the issuance of amending SRO. Submits that the petitioner's Hino Trucks was imported under letter of credit dated 23-1-2013 and therefore, clearly falls under proviso to para 4 and respondents had no authority to seize the vehicle. Further submits that under the law laid down by this Court in Messrs S.T. Enterprises through Proprietor v. Federation of Pakistan through Secretary, (Revenue Division/FBR) Islamabad and 4 others (2009 PTD 467) under section 32, the respondents cannot seize the vehicle. Further submits that in view of the law laid down in Messrs Zeb Traders through Proprietor v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and 3 others (2004 PTD 369), the Customs Authorities were not authorized to retain the goods, which were released on payment of duty and taxes. Further submits that the matter regarding Import Policy, 2013 is pending before the Islamabad High Court, Islamabad in Writ Petition No.3795 of 2013 wherein the Court has granted interim relief with regard to release of imported vehicles on payment of duty and taxes in terms of order dated 9-10-2013. Further submits that the release of the vehicle in question was made on the basis of order dated 26-7-2013 passed by respondent No.4. Submits that the vehicle in question was intercepted and seized without obtaining any order from the High Court which is also a violation of FBR letter dated 20-12-2013, therefore the action of the respondents is illegal which is liable to be set-aside under writ jurisdiction of this Court.

5.On the other hand, learned counsel for the respondent No.4/department entered appearance on last date of hearing i.e. 20-1-2014 and submitted that the matter be decided after going through the comments, which are to be consider as arguments on behalf of learned counsel for the respondent No.4. Perusal of report and parawise comments submitted by respondent No.4 reveals that respondent No.4 has claimed that the vehicle was released in compliance of Board's letter dated 1-1-2014 read with Writ Petition No.3795 of 2013 filed by the petitioner in Islamabad High Court and sought a declaration that the action of MCC, Hyderabad be declared legal and just.

6.Learned counsel for the respondents 2, 3 and 6 have raised preliminary objection on maintainability of the present writ petition as the same has allegedly been filed by suppressing the actual facts. Submits that petitioner has violated the provisions of the Import Policy Order, 2013 and Foreign Exchange Manual and have evaded huge amount of duty and taxes through gross mis-declaration and under invoicing in terms of description and value of the imported vehicle. Submits that the contract entered into exporter and the petitioner is not a valid contract in terms of section 25 read with section 29 of the Contract Act, 1872 i.e. an agreement made without consideration and uncertainty are void. Submits that in the agreement dated 9-1-2013 consideration of party A (exporter) is uncertain as there is no single clause stipulating the total value of the contract. Submits that Letter of Credit is a separate transaction and in no way is concerned with or bound by underlying contract, performer invoice etc. Hence, the entire claim of the petitioner to seek relief on the basis of an Exclusive Agency Agreement is untenable. Submits that the letter of credit is governed and regulated by the Foreign Exchange Manual of State Bank of Pakistan and under the said manual amendments in the amount of Letter of Credit is not justified. Submits that petitioner has not only violated the provisions of the Import Policy Order, 2013 and Foreign Exchange Manual but has defrauded the exchequers by evading the huge amount of duty and taxes through gross mis-declaration and under invoicing in terms of description and value of the imported vehicle. Submits that writ petition is liable to be dismissed.

7.I have heard the arguments of the learned counsel for the parties and have also gone through the record available on the court file.

8.Respondents/department have seized the vehicle on the ground that the same has been imported in violation of section 3(1)3 of Import and Export Control Act, 1950 read with Import Policy Order, 2013 and Foreign Exchange Regulation Act, 1947 as well as the Customs Act, 1969, whereas the petitioner claims that the vehicle is imported under letter of Credit established on 23-1-2013 which is protected under proviso to clause 4 of the Import Policy Order, 2013.

9.In view of the above this court is required to ascertain whether the seized vehicle cleared vide GD No.HDRY-HC 194 dated 21-9-2013 has been imported under validly established letter of Credit dated 23-1-2013 or not?

For this purpose I will first analyze the Exclusive Agency Agreement dated 9-1-2013 (Agreement). The said Agreement has been executed between the Petitioner and one Al-Waris Autos Spare Parts TR.L.LC of Dubai for the import of 2000 Sprinkle Lorries. Under the agreement the petitioner is defined as The Buyer and is Party B to the agreement. Under the agreement it is agreed between the parties that per month schedule of importation shall be chalked out by mutual agreement. Price and payment are mentioned in clause 6 of the Agreement which states as under:--

Price and Payment:

The price for each individual transaction shall be fixed as per price schedule given below, through negotiations between Party B and the buyer, and subject to Party A's final confirmation. Payment shall be made by confirmed, irrevocable L/C opened by the buyer in favour of Party A, which shall reach Party A fifteen days before the date of shipment.

10.The above clause shows that price between Party B i.e. the petitioner and customers will be finalized only on approval of Party A (the exporter) and finalized price will be paid through letter of Credit open by the "buyer" in favour of Party A and which shall reach Party A fifteen days before the date of shipment. Clause 7 of the Agreement deals with the delivery of the vehicles which states as under:-

Delivery:

All the rights and title of ownership to the goods imported under this agreement will be transferred by Seller to Buyer by endorsing the Bill of Lading (B/L) in favour of said buyer. However, the Party B shall be entitled to delivery of goods when the full advance payment is received by the Party A, fifteen days prior to shipment. Party B shall not make any sale on basis of chasis numbers prior to actual shipment.

11.From the perusal of above two clauses it clearly shows that the seller and Buyer are two different persons. As in the clause 6 letter of credit was to be opened by the buyer and not by Buyer. Further, in clause 7 it is clear that Buyer can have the delivery if full payment is received in advance by the Party A. This opinion also finds support from clause 2 of the Agreement which states as under:--

Appointment:

Party A hereby appoints Party B as its Exclusive Agent to import the commodity stipulated in Article 3 for customers in the territory stipulated in Article 4, and Party B accepts and assumes such appointment.

12.The above clause shows that importer is appointed agent for the "customers". The combined reading of the above clauses i.e. clauses 2, 6, and 7 of the Agreement reveals that the letter of credit will be opened by customer/buyer or the third party on agreed price and then Party A will send the vehicle to Party B. However, nothing of this sought is carried out between the parties to the Agreement. It is also relevant to mention here that under Clause 6A price of different model of vehicles were agreed between the parties to the Agreement. Under clause 6C(i) it was agreed that "the amount of twelve million US$ shall be remitted through L/C of above bank by Party B to Party A."

13.It is not clear from where this amount of twelve million US $ was reached between the parties to the Agreement as nowhere in the agreement number of each model was agreed between the parties to the Agreement. Further the pro forma invoice placed on record is dated 11-1-2013 i.e. after the execution of the Agreement.

14.On 26-1-2013 the parties to the Agreement entered into an amendment of the Agreement whereby a new clause 6C(ii)(a) was agreed whereby it was agreed that Party B (Petitioner) shall keep on enhancing the amount of Letter of Credit whereby availability of US$ 200,000 for party A shall be ensured and thereby ensured uninterrupted export to Party B of agreed number of sprinkle lorries. Through the amendment it was also agreed that as bank has declined to be guarantor for import of whole agreed number of vehicles therefore petitioner agreed to deposit one million US$ as guarantee with the Party A.

15.Analysis of the above mentioned clauses of the agreement read with amended agreement dated 29-1-2013 reveals that it contains self contradictory clause. On the one hand letter of credit in favour of Party A was to be opened by the buyer or customer with whom Party B (The Buyer) will negotiate the price. The delivery of all rights was to be transferred to the said buyer by endorsing the Bill of Lading in favour of said buyer. However, a right was given to the Party B (The Buyer) to have the delivery if full advance payment is already received by Party A. On the other hand under clause 6C read with clause 6C (ii)(a) petitioner (Party B) was required to establish letter of Credit the amount of which will be kept on increasing by US$ 200,000.

16.It is surprising to note that the letter of credit is for an amount of US$ 200,000 whereas the performa Invoice on the basis of which the said letter of credit has been established is of US$ 1,200,000.

17.The matter does not end here under clause 6C (iv) Party B was bound to purchase 2000 Sprinkle Lorries irrespective of any restriction on import of Sprinkle Lorries in Pakistan. The clause states as under:--

Purchaser (Party B) shall be bound to purchase 2000 Sprinkle Lorries irrespective of any restriction on import of Sprinkle Lorries in Pakistan or change in Import Policy. This is in synchronization with proviso to para 4 of Import Policy in vogue (as amended by S.R.O. 1119/2011 dated 28-12-2011).

18.The above clause makes the whole agreement void under Section 23 of the Contract Act, 1872 which states as under:--

23. What considerations and objects are lawful and what not.-- The consideration or object of an agreement is lawful, unless--- it is forbidden by law; or

Is of such a nature that, if permitted, it would defeat the provisions of any law; or

Is fraudulent; or

Involves or implies injury to the person or property of another; or

The Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

19.The Government of Pakistan made an amendment in the Import Policy vide S.R.O. No.193(I)/2013 dated 8-3-2013 whereby it restricted the import of Spraying Lorries or Sprinklers not older than five years shall be allowed. On promulgation of said Import Policy, the Agreement becomes illegal and therefore any import of vehicle older then 5 years will be illegal.

20.The claim of the petitioner that the same has been imported under Letter of Credit which was established against registered Agreement is also of no help to the petitioner as the Agreement has been registered under clause 16 of Chapter XIII of the Foreign Exchange Manual which states as under:-

16. IMPORTS ON THE BASIS OF REGISTRATION OF CONTRACTS.

The undernoted procedure will be adopted for making imports of goods not subject to authorization from the Export Promotion Bureau/Ministry of Commerce as also not subject to minimum margin restrictions, if the importer wants to make the import on the basis of registration of contract without opening letter of credit:-

(i)The importer will submit a copy of the contract/purchase order/proforma invoice/indent etc. to the Authorized Dealer for registration.

(ii)The Authorities Dealer registering the contract etc, will issue to the importer, a registration certificate in the format appearing at Appendix V-25.

(iii)In case the documents covering imports are received by the branch of the Authorised Dealer which had registered the contract/purchase order/proforma invoice, directly from the bankers of the suppliers abroad, the remittance may be effected in terms of the instructions laid down in paragraph 23(i) of this chapter provided the documents conform to the terms of the relative contract/purchase order/indent or proforma invoice.

(iv)In case the shipping documents are received by the importers directly, or by the Authorised Dealer from the overseas supplier instead of the bankers of the suppliers, should be made in accordance with the instructions contained in Para 23(ii) of this chapter.

(v)In case of imports from ACU member countries, remittances will be effected through ACU Clearing Arrangements.

(vi)Forward cover will be available to the imports in accordance with the terms and conditions laid down in Chapter IV of this Manual.

(vii)Authorized Dealers will incorporate the figures of the contracts registered by them/remittances made there against in the statements as per appendices V-131, V-132 V-133 and V-134 (para 15-Chapter XXII).

21.The reading of clause 16 reveals that the same is made when importer wants to make import without opening of Letter of Credit. Further the amount mentioned in the Agreement as well as in the Performa Invoice dated 11-1-2013 is US$ 1,200,000 whereas in the Letter of Credit only US $ 200,000 is mentioned. Under para 7 to Chapter XIII Letter of Credits to be opened only against firm contracts which states:--

7. Letter of Credit to be opened only against Firm Contracts

Authorised Dealers should ensure before opening a letter of credit that in each case a firm commitment exists. For this purpose, they should ensure that an invoice, order or indent has been issued by an indentor duly registered as imported under Registration (Importers and Exporters) Order, 1993 and it bears registration number of the indentor concerned. It is also permissible to open a letter of credit on the basis of proforma invoice/order issued/accepted by the foreign supplier. Authorised Dealers should also ensure that while pending letters of credit, full description of the goods to be imported is given in each credit along with their prices. In all cases where the amount of the letter of credit is Rs.1,500,000 or over, Authorised Dealers should obtain a confidential report on the exporter from their branches or correspondents aboard or in their discretion satisfy themselves as to the standing of the shipper by consulting standard books of reference issued by international credit agencies such as Seyds, Dunn and Bradstreet. Such reports should be obtained by the Authorised Dealers themselves and the reports if submitted by the importers should not be accepted. Even in the case of imports of the value of less than Rs.1,500,000, it is important that the Authorised Dealers satisfy themselves about the bona fides of the transactions before opening letters of credit.

22.Now I shall take up the matter whether under the Foreign Exchange Manual any amendment can be made in the letter of credit and if yes then on what basis and to what extent?

23.Petitioner has claimed that he is enhancing the amount of Letter of Credit dated 23-1-2013 under clause 6C (ii)(a) of the Agreement. However no such document is placed on record which show that the amount of Letter of Credit dated 23-1-2013 was enhanced from initial US$ 200,000 to another amount of US$ 1200,000. Further clause 9 of Chapter XIII of the Foreign Exchange Manual is very relevant for the resolution of the present controversy which states:--

9. Opening of/Extension in Letters of Credit - Time Frame/Change of Beneficiary and Commodity/other Amendments.

(i)Authorized Dealers can open letters of credit and extend their validity for a period allowed by the import policy announced by the Ministry of Commerce subject to compliance with all the conditions laid down therein.

(ii)If the import policy does not lay down any instruction in this regard, they may open letters of credit for a period upto 12 months. However, in respect of machinery and mill-work which are required to be specifically manufactured and the period of manufacture is more than 12 months, the letter of credit may be opened for a period up to 24 months. The validity of a letter of credit may be extended by the Authorised Dealers for further periods not exceeding 12 months at a time on payment of fee, if so prescribed in the import policy, at a time on payment of fee, if so prescribed in the import policy, provided there has been no change in the Import Policy/exchange regulations in relation to the importability of the goods, the country of origin/shipment, and the method of payment/and if approached within its validity. An expired letter of credit may also be similarly revalidated subject of the same conditions.

(iii)Authorised Dealers are also allowed to amend the letters of credit envisaging change of he beneficiary/goods at the request of the importers provided the importers approached the Authorised Dealers for the change within the validity of the letter of credit and import of the goods covered by the letters of credit are still permissible.

(iv)Authorised Dealers should also ensure to make endorsement of L/C opened for items (other than freely importable items) whose import is subject to certain conditions, in the original Category Pass Book. In case an importer opens letters of credit with more than one bank, the Authorised Dealer holding the original category Pass Book will make out Photostat copies thereof, authenticate the same and furnish other concerned Authorised Dealers with it and will keep record thereof.

(v)Authorised Dealers may also make other amendments in the letters of credit without reference to the State Bank provided the amendments are not in conflict with the provisions of this Manual or the Import Trade Control Regulations.

(vi)Letters of credit may provide for negotiation of documents within a period not exceeding 30 days from the date of shipment.

24.From the above it is very clear that any amendment/change in the letter of credit will be subject to the Import Policy applicable at the time of amendment/change in the letter of credit. In the present case, although no document for change is placed on record by the petitioner, however even if a change was made in the letter of credit after the issuance of Import Policy, 2013 the same was illegal and against the Import Policy, 2013. Therefore an import made on the basis of said illegal amendment will be illegal and in violation of the applicable laws.

25.After change in the import policy vide S.R.O. 193(I)/2013 dated 8-3-2013 the letter of credit cannot be amended by the bank for the import of vehicles which are older than 5 years as the same will be in violation of the Import Policy, 2013. Therefore for this reason no document with regard to the alleged enhancement of the Letter of Credit dated 23-1-2013 has been placed on record by the petitioner.

26.The case-law relied upon by the learned counsel for the petitioner in support of his contentions is not applicable to the facts of the present case.

27.In view of what has been discussed above, it is held that the seizure made by the respondent No.6 is in accordance with law and facts of this case. The vehicle bearing Chassis No.FDIJKB-10494, Model 1997 cannot be declared to have been imported under Letter of Credit dated 23-1-2013, therefore, the writ petition is dismissed with no order as to costs.

28.Before parting with the judgment, it is observed that petitioner has got cleared 500 vehicles from respondent No.4 including the seized vehicle without any objection, I have gone through the order dated 26-7-2013 passed by the respondent No.4 wherein only issue with regard to valuation was considered. Respondent No.4 as well as his staff at MCC Hyderabad were not only required to verify the value of the imported goods but also required to see whether the same are imported on the basis of valid documents including the Letter of Credit. The Letter of Credit placed before this Court and mentioned on the relevant GD clearly shows that the same is for US$ 200,000 and opened against perform invoice dated 11-1-2013 which was for an amount of US $ 1,200,000. On the basis of such letter of credit petitioner has got released 500 vehicles. In parawise comments respondent No.4 has mentioned that "the action of enhancing the amount of original LC has been declared illegal and without lawful authority by the Ministry of Commerce" however no where it is mentioned that such efforts were made by the respondent No.4 or its staff while clearing the vehicles under the letter of credit dated 23-1-2013. Further in reply to para 9 of the writ petition respondent No.4 has stated "The vehicle was released in compliance of Board's letter dated 1-1-2014 (Annex-G) read with W.R.P No.3795 filed by the said petitioner in Islamabad High Court and matter regarding importability as vehicles against the said LC is still pending in the court of law despite clarification of the Board vide letter dated 20-12-2013". Before this court respondent No.4 is taking stance that the vehicle was released on the basis of writ filed by the petitioner and letter of FBR which were issued much after the clearance of the said vehicle. From the record it is clear that the vehicle was in fact released on 23-9-2013 whereas the writ was filed by the petitioner in Islamabad High Court on 5-10-2013 and the stay order was obtained on 9-10-2013 FBR letter is dated 1-1-2014.

29.The above mentioned facts needs proper investigation by Federal Board of Revenue so that real culprits be taken to task, therefore, copy of this judgment along with writ petition and the reply filed by respondent No.4 be sent to the Chairman Federal Board of Revenue, Islamabad who shall initiate proper investigation in this matter to identify the culprits and on conclusion of inquiry criminal cases should also be registered against the real culprits identified in the inquiry.

MH/A-19/LPetition dismissed.