SHAIKH PIPE MILLS VS COLLECTOR OF CUSTOMS (ADJUDICATION-II), 2015 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 999 (2014)

Customs Act (IV of 1969)---

----Ss. 18, 19, 27(3), 32, 156(1), Clauses (1)(10-A) & 194-A---Customs Rules, 2001, Rr.351 & 359---Short landed goods---Levy of customs duty, taxes and penalties---Exemption---Wastage---Determination of---Exemption claimed by importer on alleged "short landed goods" was refused by the Customs Authorities---Validity---Trust had verified the short landing of goods---Under S.18 of the Customs Act, 1969, customs duties and taxes, could be imposed on goods actually arrived in the territorial waters of Pakistan, and not otherwise---No mala fide was noticed on the part of importer, who had been furnishing the prescribed Appendix-IV every month to Customs Authorities, in which short landing of material, and percentage of waste, were declared and claimed---Customs duties and taxes, would not be recovered on short landed goods as verified/certified by the Port Trust in their weightment certificate---Impugned penalty imposed on importer, was unwarranted---Importer had failed to adhere to the requirement of short landing notices, as prescribed under R.359 of the Customs Rules, 2001---Such though was a procedural error, but was to be care of in the information furnished by importer in the rest of the required documentation (Appendix-IV)---Penalty could be imposed on importer under S.156 of the Customs Act, 1969, but was let off with warning to the importer to be careful in future---Appeal to that extent was allowed---Importer claimed process wastage at 10% in case of imported goods, but importer had not produced analysis certificate---Case was remanded to Collector of Customs (Adjudication), for determination of wastage, with direction to re-determine it in consultation with relevant authorities, within three months---Importer would be required to pay the duties and taxes, if any, resulting from the re-determination of wastage---In absence of any mala fide on the part of importer, penalty imposed, was remitted.

Akbar Hussain v. West Punjab Province PLD 1954 Lah. 188; Fazal Qdir's Case PLD 1963 SC 486, 423; Assistant Collector of Customs v. Khyber Electric Mfg. Co. Ltd. 2001 SCMR 838; PLD 2005 AJ&K 5; East and West Steamship Company v. The Collector of Customs PLD 1976 SC 618 and Lahore Textile and General Mills Ltd. v. The Collector of Customs, Lahore PTCL 1999 CL 473 ref.

Imran Javed, Consultant and Imran Iqbal for Appellant.

Ali Waheed Khan, Deputy Collector and S.M. Ilyas, A.O. for Respondents.

Date of hearing: 24th September, 2014.

ORDER

KHALID MAHMOOD, MEMBER TECHNICAL-I.---This appeal has been directed against the Order-in-Original No. 43 of 2013-2014 dated 30-6-2014 passed by the Collector of Customs (Adjudication-II), Karachi.

2.Brief facts of the case as stated in the impugned order are that the Revenue Receipt Audit (CRA) conducted performance audit of the manufacturing bonds for the period from July 2007 to December, 2010 and submitted Audit Report vide letter No.DGRRAISFAT-03/S.S.Mfg. Bonds/Obs/2010-11 dated 30-6-2011 which vide Audit Observation Nos.11 and 12 dated 23-6-2011 contained the following in relation to manufacturing bond license of the appellants:--

"Audit Observation No. 11 dated 23-6-2011

(i)According to Rule-351 of the Customs Rules, 2001, every licensee is required to obtain/get approved from the Collector of Customs an analysis certificate for goods to be manufactured in manufacturing bond showing the actual quantity of input goods used and wastage occurred in the manufacture of one unit of finished goods.

(ii)During the examination of record of manufacturing bond of M/s. Sheikh Pipe Mills, Karachi (PWL-04/2010) it was observed that the licensee was claiming/availing process wastage @ 10% in case of imported 1-IRC material (1-Jot Rolled Coil). However, no analysis certificate was produced before the Audit. While the FBR in case of M/s. IIL, Karachi had finally approved in July 2006 the wastage in case of HRC showing the input output ratio and, wastage as under:

(iii)Messrs Sheikh Pipe Mills, Karachi (PWL-04/2010) had, therefore, claimed/availed wastage in case of imported raw materials HRC in excess of the normal admissible percentage during the year 2010. This excess wastage also involves government dues amounting to Rs.1,400,679.

Audit observation No.12 dated 23-6-2011

(i)As per Rule-359 of the Customs Rules, 2001, notified vide S.R.O. 450(I)/2001 dated 18-6-2001, the licensee of a warehouse shall submit the short landing of goods notice to an appropriate officer of Customs, not below the rank of Assistant Collector, within a week from the date of warehousing of the goods or before filing the first ex-bond GD or whichever is earlier.

(ii)During the course of the examination, it was observed that in a few cases the licensee had endorsed the weight of imported raw materials i.e. hot rolled coil of steel and Zinc far less than the weight as declared on the GD and as found by the Customs officials at the time and place of examination as is evident from the weighment certificates issued by the Karachi Port Trust. Moreover, no weighment certificate was countersigned by the supervisor weighbridge as per requirement printed on the weighment certificate. However, no short landing of goods notice was submitted by the licensee to the Customs.

(iii)Steel sheets are imported in rolled coils and Zinc in the form of ingots. In both cases, since no specific packing material is used, as goods are held by steel wire / strip, therefore, gross and net weights are considered same as declared on the GD. Again, no relevant commercial invoice or any other documents showing short shipment of goods from abroad was shown to the Audit. Short accountal of goods, in such cases, cannot be accepted without any solid reasons. The omission resulted in short accountal of imported goods involving government dues on account of duty/taxes has been calculated to the tune of Rs.3,713,844".

3.A show-cause notice dated 30-8-2011 was issued to the appellants. The Adjudicating Officer passed an Order-in-Original No.03/2012 dated 28-2-2012 which was assailed before the Collector of Customs (Appeals) who remanded the case vide Order-in-Appeal No.6944/2012 dated 1-1-2013 back to the Adjudicating Authority for de-novo consideration. Upon re-consideration, the adjudicating officer passed the Order-in-Original No.43/2013-14 dated 30-6-2014 which is subject of this appeal. The adjudicating officer concluded his observations in the following terms:--

"After careful consideration of all the facts as discussed above, I hold that the charges levelled in the Show-Cause Notice stand established. Superior courts have held that "taxation laws are not in the nature of penal laws, they are substantially remedial in their character and are intended to prevent fraud, suppress public wrong and promote the public good. They should be therefore, construed in such a way as to accomplish those objects". Reducing the amount of duties and taxes on the basis of Short Landing merely on the basis of weighment certificate of KPT, which itself was initially deficient and was subsequently corrected without following the proper procedure laid down for such cases would be unlawful and discriminatory. Similarly, while a manufacturer/ exporter is free to chose whether they want to apply for a certain conditional exemption or not, they are not at liberty to deviate from the terms of the license and the rules once they are granted such conditional exemption. In this case, the licensee refused to accept the Analyses Certificate and continued to claim wastage on excessive 10% in spite of the fact that subsequent physical verification confirmed, rather decreased the wastage previously allowed. I therefore order Messrs Shaikh Pipe Mills, Karachi (PWL 04/2010) to immediately pay the amount of Rs.5,114,523 (Rs.3,713,814 on the goods claimed to have been short-shipped, and Rs.1,400,679 on the excess wastage claimed and denied). Realizing the fact that legitimate public money has been withheld by the licensee for four year. I order penalty of Rs.2,500,000 on Messrs Shaikh Pipe Mills, Karachi in terms of clauses (1) and (10A) of section 156(1) of the Customs Act, 1969."

4.The grounds for appeal before us are as follows:--

(i)Under section 18 of the Customs Act, 1969, customs duties and taxes can only be imposed on such goods which comes in the territorial waters of Pakistan. In this case the impugned quantity of 192,762 kgs as per Show-Cause Notice has not entered into the territorial waters of Pakistan and therefore duties and taxes cannot be recovered on short landed goods.

(ii)The Karachi Port Trust has verified the short landing of the goods vide letter No. T/(A&C)/2014/1146 dated 13-1-2014 has verified the weighment certificates and therefore the said verification of weight is a conclusive evidence to prove that the weighment certificates as genuine and bona fide.

(iii)With regard to the question whether the percentage of wastage could be compared with the International Industries Limited, Karachi as referred in the show-cause notice, it is submitted that the said determination is illegal as the technologies of Messrs International Industries Limited could not be legally compared with the conventional method of manufacturing of welded pipes through machinery and equipment installed in the year 2000. The above manufacturing unit (IIL) was set up in the year 2006 to the best of knowledge and ability of the appellants and therefore by no process of reasoning the manufacturing process between the two industries could be legally compared.

(iv)That the respondent No.2 has failed to provide us the basis of finally determining the percentage of wastage at 3.75% and 4.90%. In law he is required to provide the survey report and basis of determining 3.75% and 4.90% as wastage against the appellants to meet the ends of natural justice. The determination as such without basis is illegal and is liable to be set aside.

(v)That the respondent No.1 has failed to accept the appellants contention to the effect that the percentage of wastage's may be got verified from Engineering Development Board or IOCO who is competent to do so in the light of practice and procedure. It is regretted that the respondent No.1 has not accepted the appellants request which tantamount to violation of the principles of natural justice which we may say with enormous respect.

(vi)That in identical cases the percentages of wastage's being allowed is 10% and the appellants are being treated discriminatorily which is submitted with utmost respect. Reliance is placed on the determination made at 11.96% by the respondent No.2 in identical same manufacturing units namely Messrs Ajmair Traders Lahore (ii) Messrs Mehboob Steel Pipe Industry have determined wastage of Hot Rolled Coils at 11% and 9.90% respectively. Therefore this crucial evidence has not been taken into account by the respondent No.1 in his impugned order and therefore it is liable to be set aside on this ground alone.

(vii)That with regard to the imposition of the penalties to the tune of Rs.2,500,000 it is submitted that the imposition of penalty is too harsh and illegal, if we may say with enormous respect. It is well settled law that penal action cannot be taken unless there is element of mensrea. In this case there is no element of mensrea on the ground that firstly, it is the appellant who has informed the respondent No.2 that there is short landing of the goods through filing of the Appendix-IV as required under the manufacturing bond rules. Secondly, it is the appellant who has claimed 10% by declaring on the Appendix-IV to the respondent No.2. It is not a case of detection by the respondent No.2. In law the appellants has all the liberty to claim a percentage of wastage which the respondent No.2 may agree or disagree. The claim of wastage does not warrant a charge of false statement within the meaning of section 32 of the Customs Act, 1969. The respondent No.2 may agree or disagree but under the law no penal action can be taken where the claim is made by the appellant.

(viii) That with regard to the imposition of penalties it is further submitted that the show-cause notice was issued on 30-8-2011 and was remanded by the Collector of Customs (Appeals) at Karachi on 1-1-2013 and then was finally adjudicated by respondent No.1 on 30-6-2014. A perusal of these dates would show that at no point of time the appellants have shown any laches in defending the show-cause notice. It is the respondents who have taken 17 months in deciding the case therefore no penalties could be imposed on the appellant for holding the government revenue as pointed out by the respondent No.1. It is well settled law that for the acts of public functionaries a citizen could not be legally punished or penalized.

(ix)That the impugned order-in-remand is hit by limitation under section 179 of the Customs Act, 1969 hence all the proceedings as impugned in the order-in-remand is liable to be set aside being barred by limitation under section 179 ibid.

(x)The appellant prayed that the Order-in-Remand No. 43 of 2013-2014 dated 30-6-2014 may kindly be set aside and held that under the law the short landed goods could not be charged to customs duties and taxes. Since there is no mala fide the imposition of penalties are unwarranted and may be remit and lastly the determination of wastage's by respondent No.2 may be held illegal, and discriminatory.

(xi)In terms of section 95 of the Customs Act, 1969, there is no involvement of government revenue. The wastages are exempt from customs duties and taxes as these are classifiable under HS code 72---

5.The respondent-2 made the following submissions, vide their para wise comments, dated 23-8-2014:--

(i)The adjudged amount of Duty and Taxes amounting to Rs.5,114,523 and Penal Amount Rs. 2,500,000 i.e. Total Rs.7,614,523 is to be deposited under Section 195B of the Customs Act, 1969, which in this case has not been done.

(ii)Appellant availed the facility of Manufacturing Bond under S.R.O. 450(I)/2001 and under this scheme is bound by Chapter XV of Custom Rules issued under the said SRO. And whereas, the appellant violated Rule 351 which lays down the procedure and competent authority to finalize the ratio and wastage and issue the Analysis Certificate. Hence the adjudged amount of duty and taxes, in excess of admissible wastage is due and recoverable from appellant.

(iii)Appellant availed the facility of Manufacturing Bond under S.R.O. 450(I)/2001 and under this scheme is bound by Chapter XV of Custom Rules issued under the said SRO. And whereas, the appellant violated Rule 359 which lays down the procedure and competent authority to allow short landing. Hence the adjudged amount of duty and taxes for violation of this rule is due-and recoverable.

(iv)Lastly, for the aforementioned acts in breach of the law and rules and established mala fide, Rs. 2,500,000 penalty was rightly imposed.

(v)The complainant approached this Honorable forum with misrepresentation and false statements as to facts and law i.e. where, when and under which law/rule did the Collector of Customs when and under which law did the Karachi Port Trust confirm the short landing of goods?

(vi)The complainant approached this Honorable forum with misrepresentation and false statements as to facts and law i.e. backed by which law / rule can claimed wastage be construed as final wastage without the approval of competent authority? And which legal justification and practice is the appellant referring to?

(vii)That it is an established fact the appellant violated the express provisions of law and rule with intent to misuse the benefit extended under the Manufacturing Bond Scheme. And hence the penalty has been rightly imposed.

(viii) In the presence of express provisions of the law such as subsection (3) of section 27 and Rule 359 of S.R.O. 450(I)/2001, the said law and rule do not provide for such representation being illegal. That it is the settled principle of law that when law requires a thing to be done in a particular mode and manner it shall be done accordingly and if not so it shall be presumed not to have been done. Reliance is plated on case reported as Akbar Hussain v. West Punjab Province PLD 1954 Lah. 188: Fazal Qdir Case PLD 1963 SC 486, 423, Assistant Collector of Customs v. Khyber Electric Mfg. Co. Ltd. 2001 SCMR 838 and PLD 2005 AJ&K 5.

(ix)That when the representation is illegal and in contravention of given law and rule thereof, any action thereon is void abinitio. Hence letter issued by Karachi Port Trust has rightly not been considered in the impugned Order-in- Remand by the Adjudicating Authority.

(x)Mere acknowledgement / verbal consent does not establish a right. Besides the said letter issued by the Karachi Port Trust at this belated stage has no legal basis since the law and rule clearly require the approval of appropriate officer of Customs in the given time frame. Secondly, the procedure adopted for determination of wastage has been communicated to the appellant vide Letter No.SI/MISC/264/2010/MFG.BOND/EXP dated 13-7-2011 at the time of finalization of same.

(xi)The letter issued by the Karachi Port Trust has no legal backing. Besides, the same has rightly not been considered by the Adjudicating Authority in the impugned Order-in-Original.

(xii)Section 18 of Customs Act, 1969 duty and taxes are charged. The appellant did not follow the procedure as laid down by the law under subsection (3) of section 27 and Rule 359 of S.R.O. 450(I)/2001 at the time of import and warehousing, respectively. The Adjudicating Authority while rejecting this claim of appellant has given detailed reasoning vide Para 12 of the impugned Order-in-Remand.

(xiii) The act of filing representation by the appellant and verification of Karachi Port Trust at this belated stage is a violation of express provision of law and rule, as referred to in the above Paras.

(xiv) The wastage of appellant's Unit has been independently ascertained at 3.95% after following the laid down procedure. The same was communicated vide letter dated 1-7-2011.

(xv)The afore-referred letter dated 13-7-2011 clearly states the procedure and basis of ascertaining the wastage and is in consonance with Rule 351 of S.R.O. 450(I)/2001.

(xvi) That the contention of the appellant has no legal basis as Rule 351 clearly lays down the procedure and competent authority to ascertain wastage. And nowhere is the Engineering Development Board authorized to undertake this task.

(xvii) The appellant vide Para 11 has differentiated itself from International Industries Limited on the basis of installed machinery and equipment. Whereas, no specific similarities have been drawn while proposing to adopt wastage granted to Messrs Steelex (Pvt) Ltd., Messrs Ajmair Traders Lahore and Messrs Mehboob Steel Pipe Industry. However, the Collectorate has ascertained the wastage independently and on merits after following the procedure laid down under Rule 351 of S.R.O. 450(I)/2001 and communicated to the Unit.

(xviii) That mala fide of the appellant has been proven on both counts i.e. claiming undue short-landing and undue wastage. And the same has been established on both occasions i.e. Order-in-Original 03/2012 dated 28-2-2012 and impugned Order-in-Remand. Thus the penalty has been rightly imposed.

(xix) The alleged bar by limitation has not been proven. As it is a settled principal of law that onus of proof is on the one alleging.

(xx) It is prayed to this Hon'able Customs Appellate Tribunal to dismiss this Appeal being devoid of merits, illegal and baseless and uphold the Order-in-Remand No. 43 of 2013-2014 and direct the appellant to deposit the adjudged amount of duty and taxes along with Penalty, forthwith Prayed in the interest of justice.

6.The rival parties have been heard and the issues examined, which for the ease of discussion that presently follows, are framed as under:--

(i)Whether customs duties and taxes, amounting to Rs. 3,713,814, can be levied and recovered on short-landed goods, confirmed by the Karachi Port Trust vide the weighment certificates, which is the claimed case in this appeal?

(ii)Whether the wastages claimed by the appellants i.e. 10% can be refused by the respondent No.2/department, which raised a recovery of customs duties and taxes amounting to Rs.1,400,679 on that count ?

(iii)Whether a penalty could be justifiably imposed (Rs.2,500,000) on the appellants?

7.We take up the issues as follows:--

(i)Under section 18 of the Customs Act, 1969, the customs duties shall be levied at such rates as are prescribed in the First Schedule to the Customs Act, 1969, or any other law, for the time being in force on "(a) goods imported into Pakistan; (b) goods brought from any foreign country to any customs station and without payment of duty there transshipped or transported for or thence carried to and imported at any other customs station and (c) goods brought in bond from one customs station to another. (Section 18) " The Legislature has therefore imposed duties and taxes on goods, which are imported into Pakistan. In a case of short landing against a manifested quantity, customs duties and taxes will be imposed on goods actually arrived in the territorial waters of Pakistan and not otherwise. The Supreme Court of Pakistan in East and West Steamship Company v. The Collector of Customs (PLD 1976 SC 618) held that the word "import" carried the meaning of "bringing in" or "to bear or carry into" and an imported article was one which was brought or carried into a country from abroad. It was further held that the import duty becomes leviable and the goods become dutiable when they first enter the Customs Port of Karachi. In another case The Lahore Textile and General Mills Limited v. The Collector of Customs, Lahore reported in PTCL 1999 CL 473, it was held that the imported goods become chargeable to duty under section 18 when they enter the territorial waters of the customs port of Pakistan. In view of the foregoing settled principles of law enunciated by the superior courts, customs duty, could not be levied on goods which have not arrived in the territorial waters of Pakistan. The Collector (Adjudication) in all fairness wrote letters No. Si/Misc/71/2010 Mfg.Bond/Exp dated 8-1-2014 to verify the genuineness of the weighment certificates issued by the Karachi Port Trust in this case. It also appears that the purpose of writing the said letters was to rectify the audit observation made in the show-cause notice according to which the weighment certificate was countersigned by the weighment clerk of the KPT and not by a supervisor. It is pertinent that an Assistant Traffic Manager has later verified the weighment certificates which have not been disputed by the respondents either, with regard to their genuineness. Therefore the weighment certificates as verified by Karachi Port Trust vide letter dated 13-1-2014 are deemed to be genuine and valid.

(ii)With regard to the question of wastages, we have observed that in identical manufacturing units the percentages of wastages determined by EDB and IOCO are between 8% to 10%. The appellants have produced two evidences in this regard wherein IOCO and Engineering Development Board in the cases of Messrs Mehboob Steel Pipe Industries and Messrs Ajmair Traders, Lahore have determined the wastages for the Hot Rolled Coils at 11% and 9.90%, respectively. It will therefore be only fair and in the interest of justice that the issue of wastages may be re-visited by the respondent - 2 (Collector of Customs Exports) in consultation with Engineering Development Board (EDB) or IOCO. The appellants ought to be afforded the same level playing field as their competitors.

(iii)On the question of penalty, we do not agree with its imposition, and the way it has been done, as we do not find any mala fide on the part of the appellants. We find that the appellants had been furnishing the prescribed Appendix-IV (every month) to respondent-II in which the short landing of the raw materials and percentages of wastages were declared and claimed. Had there been any mala fide the appellants would have not made the declaration in Appendix-IV. We further find that each Appendix-IV is verified by customs officer, Incharge of Bond, every month as required under the Manufacturing Bond Rules. No observation was found from the Incharge of Bond disputing the appellants declaration. This hardly gives any room to attribute mal-intent to the appellants. Moreover, where there is a question of law with regard to the issue whether short-landed goods could be charged to duties and taxes or not, the imposition of penalties are unwarranted. The provisions of false statement within section 32 of the Customs Act, 1969 are applicable where there is a misdeclaration of a statement on facts, which we do not find in this case, on behalf of the appellants. That said, we also find that the appellants have failed to adhere to the requirement of short landing notices as prescribed under Rule 359 of the Customs Act, 1969. Though it is a procedural error, taken care of in the information furnished by the appellants in rest of the required documentation (Appendix-IV), we feel this is where they fall within the realm of culpability attracting penalty under clause (1) subsection (1) of the section 156 of the Customs Act, 1969. Nonetheless, we let them off with warning to be careful in future. Since we do not find any mala fide on the part of the appellants, we disagree with the penalty imposed vide the order-in-original.

8.The upshot of the above is that we partly accept the appeal. It is held that the customs duties and taxes will not be recovered on short-landed goods as verified/certified by the Karachi Port Authorities in their weighment certificates. With regard to the determination of wastages, the case is remanded back to respondent - 2 with direction to re-determine it in consultation with IOCO or EDB within three months from the receipt of this order. The appellants will be required to pay the duties and taxes, if any, resulting from the re-determination of wastages. We have also not found any mala fide on the part of the appellants; and therefore the penalty imposed is remitted.

9.Order passed and announced accordingly.

HBT/144/Tax(Trib.)case remanded.