PAKISTAN INTERNATIONAL AIRLINES CORPORATION VS COLLECTOR OF CUSTOMS, 2015 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 1549 (2014)

Customs Act (IV of 1969)---

----Ss. 32(2), 156(1)(10-A)(14), 193 & 194-A---Evading amount of customs duty and taxes---Issuance of show-cause notice---Dismissal of appeal on ground of limitation---Appellant corporation allegedly evaded considerable amount of customs duty and taxes, chargeable on the re-import of their aircraft engines after being repaired abroad---Customs duty and taxes were calculated, but appellants paid less than calculated amount of duties and taxes---Appellants allegedly having made false declaration and untrue statement, had violated the provisions of S.32(2) of the Customs Act, 1969, punishable under S.156(1)(10-A)(14) of the Act---Appeal filed by appellants against order-in-original, was dismissed by the Customs Tribunal on ground of limitation---Government vide notification issued an Amnesty Scheme, whereby dues of customs duty and taxes, which assessee failed to pay, could be deposited on or before specified date without payment of penalty, fine and surcharge---Appellant, availing the benefit of said Amnesty Scheme, negotiated with Customs Authorities, and finally settled the dispute, and customs authorities allowed appellant to deposit outstanding amount, which was deposited by the appellant accordingly---Appellant having deposited entire outstanding amount of duty and taxes, within the period of limitation, demand raised by the Customs Authorities was unjust and unlawful---Impugned order, was set aside, in circumstances.

Khalid Javed for Appellants.

G.A. Khan and Yousif Baig for Respondents.

Date of hearing: 29th October, 2014.

JUDGMENT

CHAUDHRY MUHAMMAD TARIQ, CHAIRMAN.---These appeals have been directed against Order-in-Original SIB. No.86 of 1999, dated 4-11-1999, passed by the Collector of Customs (Preventive), Karachi. Since issues in all the above appeals are identical, all the above appeals are decided through this consolidated judgment.

2.Brief facts of the case are that Messrs Pakistan International Airlines Corporation (PIAC), Karachi, had evaded considerable amount of customs duty and taxes which were actually chargeable on the re-import of their aircraft engines after being repaired abroad in the USA and Holland. Consequent upon subsequent inquiries into the matter and as a result of correspondence with the PIAC on the subject by respective departments, it was revealed that a JT9 type aircraft Engine No.686019 was sent abroad for repairs on 22-2-1995 which was received back by them (PIAC)/returned from abroad after repairs on 19-8-1995. Scrutiny of the documents provided by PIAC further revealed that on return of the said engine from abroad, Messrs PIAC got it cleared from customs by filing a bill of entry No.00949/95 (AFU Imports) by declaring the import value of the said engine as UK Pounds 50,000 and on payment of duty and taxes amounting to Rs.13,02,091 only. Conversely, Messrs GE Aircraft Engineering Services Limited, USA, sent a Sales Invoice No.1871 dated 17-10-1995, for US$ 13,62,736.87 pertaining to the overseas repair of the aforementioned aircraft engine. After adding 20% freight and 1% insurance charges to the above quoted invoice value, it was calculated as equivalent to Pak. Rs.6,66,61,229 @ Rs.40.3607 = US$ 1) which should have been taken as the CIF value for customs clearance of the engine in question. Accordingly, customs duty and taxes on above mentioned CIF value were calculated as Rs.3,36,90,584 whereas Messrs PIAC had paid a sum of Rs.13,02,091 only and as such an amount of Rs.3,23,493 was paid less by them as duties and taxes. Since Messrs PIAC had made false declaration and untrue statement with regard to duty assessment of their goods viz. aircraft engine, they had, therefore, violated the provisions of Section 32(2) of the Customs Act, 1969, read with S.R.O. 681(I)/80 dated 26th June, 1980, punishable under section 156(1)(10-A)(14) of the Customs Act, 1969.

3.On 13-5-1999, a show-cause notice was issued to the appellants requiring them to pay outstanding taxes. In response to the show-cause notice, the appellants submitted their written reply and raised the following law points:--

(i)That the value has been determined by adding 20% freight and 1% insurance charges whereas, such addition in the light of S.R.O.681(I)/80 dated 26th June, 1980 is illegal as the said SRO talks about the value equal to the cost of repair etc.

(ii)That the relevant exemption notification and law is contained in S.R.O. 681(I)/80, S.R.O. 481(I)/95, S.R.O. 444(I)/96 and Sixth Schedule of the Sales Tax Act, 1990.

(iii)That the provisions of section 32(2) of the Customs Act, 1969, read with S.R.O. 681(I)/80 have not been violated hence the provisions of section 156(1)(10-A)(14) of the Customs Act, 1969, are not attracted.

(iv)That there was no false declaration and false statement. The documents received by the respondents were filed at the time of clearance.

(v)That there was no evasion of duty and taxes.

(vi)That the action is barred by time in some of the cases.

(vii)That the copies of the relevant declaration and statement have not been furnished to Messrs PIAC, therefore, an interim reply is submitted by them.

4.The matter was referred to the adjudicating officer, who vide order dated 4-11-1999, passed the Order-in-Original in following terms:--

"I have gone through the record of the case and examined the points raised by the respondents in their written replies and the arguments advanced by their attorney during the course of the hearing. The arguments of the respondents that the element of freight and insurance is not supposed to be added to repair charges, is based on misconception. S.R.O. 681(I)/80 dated 26-10-1980 talks about the cost of repair, renovation, alteration etc., to be subjected to duties and taxes, in such cases of re-imports of goods. Such costs of repair etc., obviously includes the element of freight and insurance as the same materially cost the importers i.e. the importers in addition to the repair charges also pay/ bear the freight and insurance charges which can be calculated towards the cost of repairs /alterations and are duly covered in S.R.O. 681(I)/80 dated 26-10-1980. Therefore, the argument that S.R.O. 681(I)/80 allows exemption to freight and insurance charges is not correct. The respondents claim that S.R.O. 487(I)/95 dated 14-6-1995 allowed exemption vide its Serial No.117 to items including aircraft engines, on their import, is not based on facts. Exemption made available to "spares and associated equipment" under the aforesaid serial number certainly does not apply to aircraft engines which in the scheme of customs classification cannot be taken as spares. An aircraft engine is a separately classified item which falls for classification under heading No.84.07. The respondent's view that "anything used/ fitted in an aircraft" would fall in the category of spares is too simplistic a view. The respondents themselves were not in doubt about chargeability to tax of the subject goods as in all 44 cases they have paid certain amounts as duty taxes; it is only the valuation aspect, which has come under scrutiny now. The charges of concealment of the actual invoices is established, as at the time of initial assessment and payment of duty taxes the original invoices and information contained therein were withheld by the respondents. It is not one case where such concealment has been restored; it in fact has happened in 44 cases here which cannot be due to an oversight or a mere con-incidence.

9. As the charges levelled in the show-cause notice, as discussed above, are established, I, therefore, direct Messrs PIAC to deposit the evaded amount of duties and taxes i.e. Rs.3,23,88,493 and in terms of clause (14) of section 156(1) of the Customs Act, 1969, I also impose a penalty equivalent to 20% (twenty percent) of the amount of duties and taxes tried to be evaded, on PIA corporation, which works out to Rs.64, 77,699"

5.Against the Order-in-Original dated 4-11-1999, the appellants filed appeal before this Tribunal on 15-10-2001. This Tribunal dismissed the appeal on the grounds of limitation and observed that the appeals are barred by 01 year, 09 months and 10 days.

6.The appellants assailed the order of this Tribunal before the Hon'ble High Court of Sindh, Karachi and contended there that although the Order-in-Original passed on 4-11-1999, which was received on 15-8-2001. Therefore, the appeals are well within time. The contention of appellants was considered by the Hon'ble High Court of Sindh who accepted the Customs Reference No.136/2009 to Customs Reference No.179/2009 and remanded the appeal back to this Tribunal with the following observations:

"The learned counsel for the applicants point out that it was after receiving a detention notice that the applicants came to know of the order-in-original and thus applied for a copy of such order on 6-8-2001, which copy was received by the applicants under cover of the respondent's letter dated 15-8-2001 and thereafter the applicants filed the appeal before the Tribunal on 15-10-2001. The learned counsel submits that such fact was also submitted before the Tribunal and has been recorded in the impugned order also. The learned counsel for the respondent concedes to the above.

We, therefore, find that the appeal before the Tribunal was filed well within the time and, therefore, set aside the impugned order and remand back the case to the Tribunal for its adjudication afresh, on merits, within three months from today, without fail.

Mr. Khalid Javed Khan, the learned counsel for the applicants, at this point, submits that an amount as assessed through the impugned order, has already been paid by the applicants under an amnesty scheme by the respondent. The above question and its implications may also be considered by the Tribunal while hearing the appeal."

7.Today, this Tribunal has heard the arguments of both the sides at length and perused the record. In these appeals the issue involved is about the payment of duty and taxes. Learned counsel for the appellants has, inter alia, contended that they had deposited the entire amount of duty and taxes, excluding fine and penalty, under the Amnesty scheme within stipulated period after obtaining confirmation from concerned authorities. At present, no amount, whatsoever is outstanding against the appellants. The appellants have also referred to a letter dated 21-6-2007, issued by the Deputy Collector AFU, Karachi in support of their contentions. Contesting the arguments of appellants, the respondents have contended that after deducting the entire amount paid by the appellants, a balance of Rs.1,21309,999 is still recoverable, which the appellants are liable to pay, in addition to the amount of income tax.

8.Federal Government vide S.R.O. 458(I)/2007 (Customs) and S.R.O. 463(I)/2007 both dated 9-6-2007, had issued Amnesty scheme which envisaged that the dues of duty and taxes that any person might have failed to pay, could be deposited by him on or before 30-6-2007, without the payment of penalty, fine and surcharge.

9.Availing of the benefit of above Amnesty scheme, the appellants negotiated with the respondents. On 21-6-2007, the Deputy Collector AFU, Karachi, finally settled the dispute with the appellants and allowed the appellants to deposit the sum of Rs.45,244,923 on account of outstanding amount. The contents of letter dated 21-6-2007 are reproduced hereunder:

"GOVERNMENT OF PAKISTAN

COLLECTORATE OF CUSTOMS (PREVENTIVE)

AIRFREIGHT UNIT, KARACHI

C. No. SIB-88/ 99Karachi, 21st June, 2007.

DEC/ 50/ 98-Q1T

G.A. JAHANGIR AND ASSOCIATES,

Customs, Excise & Sales Tax, Consultants,

421-Clifton Center, Block-5, Clifton,

Karachi-75600.

Subject:SETTLEMENT OF THE DISPUTE ARISING FROM ORDER-IN-ORIGINAL NO. SIB/86/99 PASSED BY THE COLLECTOR OF CUSTOMS (PREVENTIVE), CUSTOM HOUSE, KARACHI, AGAINST PIAC BEFORE ADRC.

This is with reference to your letter No. Nil dated 14-7-2007 on the subject above. This office confirms the amount (customs duty and sales tax) payable by you as communicated in your aforesaid letter.

2. As regards the recovery of advance income tax is concerned the points agitated for not pressing the same merits consideration. However, since this collectorate is not the final authority for income tax matters, the same shall be forwarded to the income tax wing of the CBR for a final decision. In case the decision is consistent with your contention the matter shall stand finally settled.

Sd/-

(IFTIKHAR AHMAD)

Deputy Collector

A.F.U. "

10.In the light of settlement, the appellants vide challan dated 27-6-2007, deposited the outstanding amount in the National Bank of Pakistan, Airport Branch, Karachi.

11.It is pertinent to mention that the letter dated 21-6-2007, in respect of settlement between the parties, was issued by Deputy Collector, AFU, Karachi, who was the competent authority. This letter was never challenged or disowned by the respondents side, giving it a finality. It is also construed as No Objection Certificate on behalf of the respondents.

12.Answering to objections of respondents about the default of appellants in payment of income tax, the learned counsel appearing produced the copies of payment of income tax to the Department; even otherwise the respondents could not claim the disputed amount of income tax, if any.

13.After hearing both the parties at considerable length and minute scrutiny of the relevant record, this Tribunal is of the considered opinion that the appellants have deposited the entire outstanding amount of duty and taxes availing the benefit of Amnesty scheme within the period of limitation. No amount, whatsoever, is outstanding against the appellants in respect of subject import and the demand raised by the respondents is unjust and unlawful. All the appeals are accepted and the impugned orders are set aside.

HBT/146/Tax(Trib.)Appeals accepted.