KOLDKRAFT (PVT.) LTD. VS FEDERAL BOARD OF REVENUE, 2015 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 1600 (2015)

Customs Act (IV of 1969)---

----Ss. 32(1)(c)(2)(3-A), 156(1)(14) & 194-A---Short payment of tax---Inadmissible concession---Recovery of unpaid advance tax---Importer had got various consignments of components/parts and finished articles on concessionary rate of income tax at 3%, as against the standard payable rate vide Goods Declaration---Said inadmissible concession resulted in the short payment of Income Tax---Adjudicating Officer passed ex parte order by observing that appellant/importer was responsible for non-appearance---Demand of the allegedly short paid tax was raised, vide show-cause notice under S.32(1)(c)(2) & (3-A) of Customs Act, 1969 and S.148 of the Income Tax Ordinance, 2001, punishable under Cl.(14) of S.156(1) of the Customs Act, 1969---Section 32 of the Customs Act, 1969 was not validly applicable to the case; and the power available to Customs Officer in terms of Ss.148 & 50(5) of Income Tax Ordinance, 2001, was limited to 'collection' of the tax only---Recovery of unpaid advance tax, could only be demanded and effected by the Officer of Income Tax (Inland Revenue) of competent jurisdiction---Customs Officer could not assume upon himself the power, which the Income Tax Ordinance, 2001, had not conferred upon him---Goods imported fell within the ambit of raw material as, importer was a manufacturer non-commercial importer---Importer was manufacturing cold equipments, which were being used in cold storages, either fixed or placed in motor vehicles and vans for transporting the different kinds of edible items from one place to another---Burden lay on the department as to prove the sale of compressors as commercial items in the open market beyond any shadow of doubt---Demand raised through the impugned order showing non-interest and non-discharge of proper mechanical approach of the department on the issue, both on legal and factual grounds, impugned order-in-original, was set aside.

2010 PTD 2086; 2010 PTD 465; 2012 PTD (Trib.) 1697; 2004 MLD 1170; Lucky Cement v. Federation of Pakistan C.P. No.216/13 dated 26-2-2013; 2010 PTD 592 and Messrs Al-Hilal Motors v. Collector of Sales Tax and Central Excise (East) Karachi 2004 PTD 868 ref.

Ajeet Sunder for Appellant.

Arif Mqbool for Respondents.

Date of hearing: 23rd December, 2014.

ORDER

ADNAN AHMED, MEMBER JUDICIAL-II---Through this order, I intend to dispose of Customs Appeal No.K-1610 of 2014 filed against Order-in-Original No.47 of 2014-15 dated 16-9-2014 passed by the Additional Collector of Customs (Adjudication-II), Karachi.

2.Brief facts of the case as reported by the Directorate of Post Clearance Audit (Customs), Karachi vide Contravention Report No.PCA/2613/2012/Audit dated 23-10-2012 that on scrutiny of the data of concessionary rate of Income Tax @ 3% admissible on import or raw materials vide clause (9A) of Second Schedule Part-II of the Income Tax Ordinance, 2001 to the industrial undertakings defined under sub-section (29C) of Section 2 ibid for their own use, it was observed that importer that Messrs Koldkraft (Pvt.) Ltd. have got various consignments of components/parts and finished articles on concessionary rate of Income Tax @ 3%, as against the standard payable rate vide Goods Declarations bearing CRN Nos. (1) I-HC-1309471 dated 10-2-2010, (2) I-HC-1969680 dated 7-11-2011, (3) I-HC-1701939 dated 2-2-2011 (4) I-HC-1756207 dated 18-3-2011 and (5) I-HC-1106214 dated 12-8-2009. The aforesaid inadmissible concession resulted in the short payment of Income Tax to the extent of Rs.9,97,532.

3.The Adjudicating Officer, after hearing the respondent passed an ex-party order by observing that the appellant was responsible for non-appearances. The order-in-original is concluded as under:

"I have examined record of the case, written replies of the importer, and heard arguments of the Departmental Representative. The crux of the matter is as to whether concessionary rate of Income Tax @ 3% was available to goods imported by the respondent in terms of clause (9A) of Second Schedule Part-II of the Income Tax Ordinance, 2001 to industrial undertaking defined under subsection (29C) of Section 2 ibid for their own use. The importers in the instant case had imported components/parts and finished articles, which do not qualify as raw material in terms of definition provided in Chapter-I (Definition) of Customs General Order 12/2002. Therefore, standard rate of Income Tax @ 3% was chargeable thereon. The representatives of the department reiterated legal position as mentioned in their parawise comments.

The undersigned carefully examined the case and perused written replies of the respondents and agree with the contention of the department. Income Tax at import stage is to be collected in the same manner and at same time as Customs Duty and the relevant provisions of the Customs Act, 1969 are also applicable thereto. Moreover, Federal Board of Revenue vide letter C.No.3(32) TAR-1/190 dated 6-8-2012 superseded previous clarifications bearing C.No.6(8)S/IR-Ops/2012-8259-R dated 16-1-2012 and C.No.6(8)S/IR-Ops/2012-8958-R dated 18-1-2012. Previously Board had authorized Inland Revenue officers to adjudicate cases relating Sales Tax and Income Tax at import stage. However, in the latest letter FBR has reversed that scenario and Authorized Officers of Customs to adjudicate those cases. Relevant para of the letter is reproduced below for reference.

"The relevant officers of Customs may, therefore, continue the adjudication proceedings already initiated and take cognizance of all cases of FED, Sales Tax and Withholding Tax pertaining to import stage in future as well"

Therefore, in view of the above, the undersigned is competent to adjudicate the case; hence, the charges levelled in the show-case notice stand established Accordingly, the respondents are directed to pay Rs.9,97,532 along with Default Surcharge into the government treasury. As the offending goods in this case have already been released therefore, the same cannot be confiscated at this stage. However, a penalty of Rs.5,00,000 in terms of Clause 14 of subsection (1) of Section 156 of the Customs Act, 1969 is imposed on the respondent".

4.Being aggrieved with the Order-in-Original No.47 of 2014-15 dated 16-9-2014, the appellants filed this appeal before this Tribunal on the grounds as under:--

That the appellant is engaged in the business of manufacturing of cold boxes and refrigerated vans including the production of parts of ice cream plants and cold storage.

That the registration of the appellant being the manufacture was made after making all the compliance with the sub-rule (4) of Rule 5 of the Sales Tax Rules, 2006. The foregoing Rule provided that if the applicant applies for the sales tax registration being the manufacture, the local registration office before allotting the sales tax number shall conduct the inquiry by physically visiting the manufacturing premises of the applicant.

That the respondent No.2 alleged that the appellant wrongly and fraudulently claimed the reduction / concession in tax rate at 3% on the import consignment, the alleged view framed by the respondent No.2 is that the subject goods in question was liable to tax at 5% as the appellant being not the consumer of the goods. Hence, the respondent No.2 through the show cause notice dated 24-5-2014 called upon to appellant to pay the differential amount of 3% as there is no facility of manufacturing available with the appellant for in-house consumption of goods.

That the respondent No.2 confirmed the faulty framed observations and passed the impugned order against the appellant for recovering the illegal and unwarranted amount of tax as the scope of respondent No.2 is restricted to post clearance of audit. On the other hand the appellant admittedly having the manufacturing unit and squarely falls under the definition of manufacturer and the address of the manufacturing unit also duly reflecting in the impugned order.

That the respondent No. 2 while deciding the case of the appellant wrongly treated him as a commercial importer instead of manufacturer without establishing and producing the cogent and independent evidence in this regard.

That the issue whether the appellant is manufacturer or commercial importer was also raised in previous years which was finally decided in favour of the appellant by the Income Tax Tribunal Lahore Bench, Lahore i.e. I.T.As. Nos. 1119 to 1122 of 2001 relating to tax period from 1995 to 1999.

That without prejudice to above, it is further submitted that the respondent No.2 does not have the authority to recover the income tax due, however, the relevant and proper authority is the Commissioner of income tax who can initiate the recovery proceedings under the relevant provisions of the Ordinance. Resultantly, the exercise of jurisdiction by respondent 2 is void and ab initio in terms of decision reported as 2010 PTD 2086.

That the order passed by the respondent No.2 is illegal, unwarranted and excess of jurisdiction, therefore, it does not meet the standard requirement of law, to support this and placed the reliance on case-law reported as 2010 PTD 465 the relevant portion of judgment is as under:

"The exercise of jurisdiction by an authority is mandatory requirement and its non-fulfillment would entail the entire proceedings to be coram non judice. The orders passed without jurisdiction are non-est in the eyes of the law. Any transgression to the responsibility assigned within the parameters of section 179(1) would render the entire exercise of authority to be ab initio void and illegal".

That respondent No.2 holds no power to recover any none/short levied income tax under the Act by assuming the appellant as commercial importer instead of manufacturer, but the Income Tax Authority undisputedly possessing the powers to collect and recover any short portion of the income tax. The relevant case-law relied upon reported as 2012 PTD (Trib.) 1697 wherein observed that:-

"The appropriate Customs officer certainly possesses the power to recover any non-short levied tax. which he was required to collect but has not been decided".

That this Honorable forum after keeping all the above under consideration, would understand that the show cause notice issued as well as order passed by the respondent No.2 is null, void and without having jurisdiction, therefore, the order passed against the appellant is also has no legal authenticity and the whole structure built on such faulty base would surely falls down to the ground. The reliance is placed on case-law is reported as 2004 MLD 1170, wherein held that:

"When basic order is without local authority then superstructure falls on the ground automatically".

That in view of the above facts and grounds, it is prayed that this honorable forum may be pleased to declare that the order passed by the respondent No. 2 is illegal and unlawful being coram non judice and set-aside the impugned order by declaring the show cause notice is unlawful.

5.I have heard both the parties and gone through the record of the case. On legal and jurisdictional issue, I find merit in appellants' contention which is based on an order of this Tribunal passed in Appeal No.187/CU/IB/2008 reported as 2010 PTD (Trib.) 2086, besides this, so many, orders passed by this forum on said issue. I also would like to further clarify the issue through an important judgment announced by the Hon'ble High Court of Sindh in C.P. No.216/13 dated 26-2-3013 titled 'Lucky Cement v. Federation of Pakistan', in which the Hon'ble High Court of Sindh has observed:--

"Whatever done in terms of Section 148 is in connection with or relating to income tax, and not to customs. The jurisdiction conferred on the Collector of Customs is obviously only by way of administrative convenience. He is a creature of the Customs Act and is empowered and obliged under the statute to collect, and if necessary recover, enforce, customs duty. The 2001 Ordinance (like the 1979 Ordinance) found it expedient to empower him to a carefully limited extent in respect of collection of advance income tax. But the fact that the Collector of Customs is dealing with such collection does not make the matter of it "a matter of" or "relating to" customs. It remains and retains its character of being a matter exclusively of income tax. Since a key element, laid down at the very beginning of sections 32 and 32A is entirely (and necessarily) not applicable in relation to section 148, it follows that no offence under the former provisions could be made out for purposes of clauses (14) and (14A) of section 156(1) of the Customs Act in respect thereon".

6.The demand of the allegedly short paid tax was raised, vide show-cause notice under sections 32(1)(c)(2) and (3A) of the Customs Act, 1969 and section 148 of the Income Tax Ordinance, 2001, punishable wider clause 14 of section 156 (1) of the Customs Act, 1969. I, however, find myself in agreement with the above views and observe that Section 32 of the Customs Act, 1969 was not validly applicable to this case, and the power available to Customs officer in terms of Sections 148 and 50(5) of the Income Tax Ordinance, 2001, is limited to 'collection' of the tax only. The recovery of unpaid advance tax, if any, could only be demanded and effected by the officer of Income Tax (Inland Revenue) of competent jurisdiction. A Customs Officer could not assume upon himself the power, which the Income Tax Ordinance had not conferred upon him.

7.As to the facts of the case, I do not agree with the contention of respondent/department that the goods imported by the appellant were not entitled to 3% concessionary rate of income tax admissible on import of raw material, in terms of clause 9A of the Second Schedule (Part-II) of the Income Tax Ordinance, 2001. Regarding the point whether the goods imported constituted the raw material or not for the purpose of 3% concessionary rate of income tax, I observe and convinced with the arguments of learned counsel of appellant that the goods imported falls within the ambit of raw material as the appellant is a manufacturer nor commercial importer, it is evident from its registration in compliance with the sub-rule (4) of Rule 5 of the Sales Tax Rules, 2006. The forgoing Rule provided that if an applicant applies for the sales tax registration as a manufacturer, the registration authority before allotting the sales tax number shall conduct physical inquiry to the premises of manufacturing of appellant. Besides this, the same issue of appellant came up before the Income Tax Tribunal, Lahore Bench, Lahore in I.T.As. Nos. 1119 to 1122 of 2001 for the tax periods 1995-1999 whether the appellant is manufacture or commercial importer, for resolution, which was ultimately decided in favour of appellant and their contention was accepted as manufacturer.

8.The appellant is manufacturing cold equipments which are being used in cold storages either fixed at places in motor vehicles and vans for transporting the different kinds of edible items from one place to another. This fact could not be denied, only relying on the alleged contention of the department that the compressors are finished products. The burden lies on the department as to prove the sale of compressors as commercial items in the open market, beyond any shadow of doubt, this gets support from case-law reported as 2010 PTD 592 wherein the Hon'ble High Court of Sindh held that "To bring the subject to charge and levy of tax the burden is upon the Revenue to establish that the said subject is chargeable to tax". Accordingly, the contention of department only stands on presumptions without any cogent reason or evidence against the appellant or any proof that the appellant had sold the impugned taxable goods on commercial basis and not used the same for home consumption so this assumption is also not permitted in eyes of law and in presence of observations of Hon'ble High Court of Sindh, Karachi passed in the case of Messrs Al-Hilal Motors v. Collector of Sales Tax and Central Excise (East) Karachi and reported as 2004 PTD 868 wherein the Hon'ble High Court held that "There is no room for any intendment and there is no presumption as to tax".

9.In view of the above, I believe that the demand raised through the impugned order showing non-interest and non-discharge of proper mechanical approach of the department on the issue, both on legal and factual grounds, therefore, the appeal of appellant is allowed and the impugned order-in-original is set aside.

10.Order passed accordingly.

HBT/16/Tax(Trib.)Appeal allowed.