MUHAMMAD AMIN MUHAMMAD BASHIR LIMITED VS GOVERNMENT OF PAKISTAN through Secretary Ministry of Finance, Central Secretariat, Islamabad, 2015 PTD-SUPREME-COURT 1100 (2014)

(Against the judgment dated 14-9-2004 of the High Court of Sindh, Karachi passed in C.P. No.D-511 of 1992)

(a) Customs Act (IV of 1969)---

----Ss. 25 & 25-B---S.R.O. 356(KE) dated 29-10-1991---Fixation of value of imports---Principles---Customs authorities---Discretion in valuation of goods, exercise of--- Scope--- "Import Trade Price"--- Appellant-company entered into a contract with a foreign-company for the importation of sugar from Thailand at a price of US $ 292.50 per metric ton---Customs Department issued a notification, S.R.O. 356(KE) dated 29-10-1991 purportedly fixing the "Import Trade Price" (ITP) of sugar imported from Thailand at US $ 331 per metric ton---On arrival of the consignment the appellant-company filed Bill of Entry declaring the value of the consignment at the contract price---Customs authorities disregarded the claim that the duty should be fixed on the contract price and imposed duty on the "Import Trade Price" value of US $ 331 per metric ton---Legality---Section 25-B of the Customs Act, 1969 (as was in force then) authorized the Central Board of Revenue, or an officer authorized by it, to fix the price of imported goods at such rate as it deemed fit---On basis of said section, Customs Department had issued the notification in question purportedly fixing the "Import Trade Price" (ITP) of sugar imported from Thailand---Section 25 of the Customs Act, 1969 provided the basis on which the value of goods which were imported or exported had to be fixed---Said section (as was in force then) was based on the concept of "normal value" which, as defined, was the value of goods denoted by contracts between buyers and sellers which reflected arm's length transactions between independent buyers and sellers operating in the open market---Notwithstanding the very wide language used in S. 25-B of the Customs Act, 1969, the powers exercisable by the Central Board of Revenue thereunder were to be limited and constrained by S. 25 of the Customs Act, 1969, which was the substantive section of law for the fixation of prices---Central Board of Revenue did not have and could not be allowed to have unfettered discretion---Exercise of any discretionary power must be rational and have a nexus with the objective of the underlying legislation---Customs authorities had fixed the "Import Trade Price" of sugar imported from Thailand by relying on an invoice for sugar imported from another country of origin---For carrying out valuation of imports on a realistic basis it must be founded on the prevalent price at the place of origin of the goods, and not on the basis of prices prevalent in another country---Said criterion had clearly been violated in the facts of the present case---Determination of the "Import Trade Price" should have nexus not merely with the price at the place of the origin of goods but also with the relevant time---International prices of commodities varied hugely with the passage of time---Customs authorities in the present case had based the "Import Trade Price" of sugar based on prices prevailing nine months prior to the arrival of the consignment, which was clearly defective---More realistic and reasonable time period should have been utilized for such purpose---Impugned notification, S.R.O. 356(KE) dated 29-10-1991 purportedly fixing the "Import Trade Price" (ITP) of sugar imported from Thailand at US $ 331 per metric ton was not valid in such circumstances and was struck down---Supreme Court remanded the case to the concerned department for fixation of price afresh in terms of S. 25-B of the Customs Act, 1969 as it was prevalent at the relevant time---Appeal was disposed of accordingly.

Phassco Hardware Company v. The Government of Pakistan PLD 1989 Kar. 621 approved.

(b) Legislation---

----Delegated legislation---Principles---Discretion, exercise of---Scope---Delegated legislation entitled the delegate to carry out the mandate of the legislature, either by framing rules, or regulations, which translated and applied the substantive principles of law set out in the parent legislation or by recourse to detailed administrative directions and instructions for the implementation of the law---Delegated legislation was intended to enforce the law, not override it, and it could be used to fill in details but not vary the underlying statutory principles---In case of conflict delegated legislation must yield to the legislative will, as it was below and not above the law---Minutiae could be filled in but the basic law could neither be added to nor subtracted from.

(c) General Clauses Act (X of 1897)---

----S. 24A---Executive authority---Discretion, exercise of---Scope---When legislature conferred a wide ranging power, it must be deemed to have assumed that the power would be, firstly, exercised in good faith, secondly, for the advancement of the objects of the legislation, and, thirdly in a reasonable manner---Where the authorities failed to regulate their discretion by the framing of rules, or policy statements or precedents, it became mandatory for the courts to intervene in order to maintain the requisite balance for the exercise of statutory power.

Amanulla Khan and others v. The Federal Government of Pakistan through Secretary, Ministry of Finance, Islamabad and others PLD 1990 SC 1092 and Abid Hasan v. PIAC 2005 SCMR 25 ref.

(d) Customs Act (IV of 1969)---

----S. 25-B---Fixation of value of imports by customs authorities---Principles.

Following are the principles applicable when customs authorities fixed the value of imported goods at such rates as they deemed fit:--

(i)The first principle which could be laid down was that the exercise of power by customs authorities in fixing value of imports had to be based on concrete evidence. In other words there had to be evidence relating to the import of goods on the basis of which the valuation process was to be carried out. It was not open to the (erstwhile) Central Board of Revenue or the Controller of Valuation to exercise arbitrary power of valuation which were not rooted in hard evidence, or were essentially speculative in nature;

(ii)the second principle was that the evidence must be based, and linked, with the country of origin of the goods. This also was obvious as there were countries in which price levels were substantially higher or lower than those of other countries. Similar or apparently similar goods could be sold at widely different prices depending on, for example, the country of origin. If the valuation was to be carried out on a realistic basis it must be founded on the prevalent price at the place of origin of the goods;

(iii)the third principle was based on a recognition of the inherent fluctuation of prices of commodities, which varied sharply from time to time. Prices prevailing many months earlier could hardly be considered to be determinative of the current market price. Since prices may vary, not merely from month to month, but even day to day, it should be recognized that it may not be practicable to lay down a strictly applicable time frame. The general principle, however, could be enunciated that if market conditions had changed substantially then it was mandatory for the price fixing authority to take due notice of the same. Valuation of imported goods should be a good faith valuation which was based on factual evidence prevalent at the relevant time. Although it may not be possible or practicable to have an exact correspondence with the price at the precise time in question but there should be a reasonable correspondence or nexus with the relevant time. What such reasonable time would be was difficult to state in the abstract since it would vary depending on the nature of the goods in question. It could be one month or perhaps two or three months. The point was it should be a reasonable period given the facts and circumstances of the case, and;

(iv)the fourth principle was that the decision should be based on relevant facts and data and not on extraneous circumstances. Just as a decision which disregarded relevant data was liable to be struck down, similarly a decision based on irrelevant data would be equally open to objection.

Messrs Latif Brothers v. Deputy Collector Customs Lahore 1992 SCMR 1083 ref.

(e) Constitution of Pakistan---

----Arts. 184(3) & 199---Civil Procedure Code (V of 1908), Part VII [Ss.96-112]---"Judicial review" and "appeal"--- Distinction--- Appellate court essentially stood in the shoes of a Trial Court and re-examined the evidence as a whole---Nature of the jurisdiction in cases of judicial review was completely different, in that a constitutional court examined not merely the decision, but the decision making process in order to determine whether that was appropriate or not.

(f) General Clauses Act (X of 1897)---

----S. 24A---Interpretation---Section 24A of the General Clauses Act, 1897, reiterates the principle that statutory power is to be exercised "reasonably, fairly, justly and for the advancement of the purposes of the enactment" and further clarifies that an executive authority must give reasons for its decision---Any action by an executive authority which is violative of said principles is liable to be struck down.

Khalid Anwar, Senior Advocate Supreme Court and M.S. Khattak, Advocate-on-Record for Appellant.

Kh. Ahmed Hassan, D.A.-G. for Federation.

Malik Itaat Hussain Awan, Advocate Supreme Court for Respondents Nos.2 to 4.

Date of hearing: 24th November, 2014.

ORDER

MIAN SAQIB NISAR, J.---This appeal arises out of the importation of 12000 metric tonnes of white refined sugar from Thailand at a price of US $292.50 per metric ton. As stated in the petition, the appellant entered into a contract with Messrs Cargill International S.A. of Switzerland for the importation of sugar on or around 14-11-1991. On 26-11-1991 (note: in the impugned judgment date of opening of Letter of Credit is mentioned as 22-11-1999, however, nothing much turns on this) the appellant opened a Letter of Credit per the terms of its contract with the seller. By means of S.R.O. No.1198(I)/91, dated 27-11-1991 a duty of 10% ad valorum was imposed on the import of sugar.

2.Section 25 of the Customs Act, 1969, as it was in force at that time, provided that the value of any imported goods shall be the normal price i.e. the price that the goods would fetch on a sale in an arms length transaction between a buyer and a seller. Section 25-B was also in force at that time. This section was subsequently repealed. This Section authorized the Central Board of Revenue, or an officer authorized by it, to fix the price of imported goods at such rate as it deemed fit. Acting pursuant thereto the Customs Department issued a notification being S.R.O. 356(KE) dated 29-10-1991 purportedly fixing the "Import Trade Price" (ITP) of sugar imported from Thailand at US $ 331 per metric ton. It is stated that this notification was subsequently published in the official gazette on 8-12-1991.

3.On arrival of the consignment at Karachi the appellant filed a Bill of Entry declaring the value of the consignment at the contract price. The Customs Authorities disregarded the claim that the duty should be fixed on the basis thereof and imposed duty on the ITP value of US $ 331 per metric ton.

4.It is this notification, and the consequential fixation of the ITP, which forms the subject matter of the present dispute. The appellant challenged the decision of the Customs authorities by filing a petition under Article 199 in the High Court of Sindh which was dismissed by means of the impugned judgment dated 14-9-2004. The view of the High Court, in brief, was that the ITP was fixed validly and in accordance with law. It was also observed that the appellant had failed to place any material on record which could indicate what the prevailing market price in Thailand was. It was accordingly concluded that neither the High Court could be expected to undertake a valuation of the price on its own nor could it be inferred that the valuation made was perverse or arbitrary.

5.Being aggrieved by this judgment the appellant filed C.P.L.A. No.2702 of 2004 and Leave to Appeal was granted on 17-3-2005 to consider, inter alia, the following questions:--

(a)Whether section 25-B of the Customs Act, 1969, demonstrates the excessive delegation without prescribing any guidelines for fixation of value for import and exports of goods specified in First Schedule and Second Schedule at the rate as to be deemed fit by the Board or such officer authorized by the Board; and

(b)Whether executive notification could operate retrospectively.

6.The question of law to be determined depends on the interpretation of section 25B as was in force at that time which reads as follows:--

Fixation of value for imports and exports.---(1) Notwithstanding anything contained in section 25, the Board or such officer as is authorized by the Board in this behalf may, from time to time, by notification in the official Gazette, for the purposes of levying customs duties under this Act or any other law for the time being in force, fix the value of the goods specified in the First Schedule and the Second Schedule at such rates as it may deem fit and subject to such conditions or limitations as it may impose.

(2)Different values may be fixed for different classes or descriptions of the same type of goods.

If we analyze section 25B it will be seen that it is divided into separate parts. The first, and in a sense most important part, is the opening clause which purports to enable the Central Board of Revenue, or any officer so authorized by it, to override the contents of section 25. Section 25 is one of the most important section's of the Customs Act, 1969 since it provides the basis on which the value of goods which are imported or exported has to be fixed. This section (as was in force then) is based on the concept of "normal value" which, as defined, is the value of goods denoted by contracts between buyers and sellers which reflect arms length transactions between independent buyers and sellers operating in the open market. This section was based on the Brussels Definition of Value (BDV). (Since in Customs matters goods are imported and exported from one country to another, an international mechanism has evolved in terms of which discussions and decisions are taken at an international level to promote the harmonization of Customs laws in order to facilitate trade between different countries). Section 25, as it stands at present, is based on a different concept, namely, that of "transaction value", however, it is the concept of normal value which is relevant for our purposes. As noted above section 25B purports to confer power on the Central Board of Revenue (as it was then called) to override the mandate of the legislature either by itself or, through any subordinate officer as authorized by it, and fix prices of goods for purposes of levying customs duty at "such rates as it may deem fit". The question immediately arises whether this constitutes a valid piece of legislation or not.

7.Can any executive authority be authorized to overrule a substantive provision of law such as section 25? Is the non obstante clause in section 25B valid? On the face of it, it is not possible for us to uphold the granting or delegation of authority to any executive or other body which entitles it to overrule a substantive provision of law. The principles of delegated legislation are very clear and hardly require any reiteration by us at this late stage. In brief, they entitle the delegate to carry out the mandate of the legislature, either by framing rules, or regulations, which translate and apply the substantive principles of law set out in the parent legislation or by recourse to detailed administrative directions and instructions for the implementation of the law. They are intended to enforce the law, not override it. They can fill in details but not vary the underlying statutory principles. In case of conflict they must yield to the legislative will. They are below and not above the law. The minutiae can be filled in but the basic law can neither be added to nor subtracted from.

8.In Phassco Hardware Company v. The Government of Pakistan (PLD 1989 Kar. 621) the vires of section 25B was discussed by the Sindh High Court which gave a highly restricted interpretation of section 25B which ensured that it was not in conflict with section 25, rather was subordinate to it, however, quite clearly section 25B purports to overrule section 25. The crucial finding is to be found in paragraph 9 of the judgment and is reproduced hereinbelow:--

"9. In our view the power conferred by above section 25-B is not legislative power, but is more akin to an executive power. In any case it is not peculiarly and distinctly legislative, executive or judicial and, therefore, it lies within the authority of the legislature to determine where its exercise shall be vested. We are inclined to hold that the above sections 25 and 25-B are to be read in conjunction as the former section contains guideline, though in section 25-B it has been provided that "notwithstanding anything contained in section 25" but it does not mean that the C.B.R. or any other officer authorized by it can fix any arbitrary valuation without having any nexus with the real valuation of the goods. It may be pointed out that section 25 contemplates that the value of each consignment is to be assessed on the basis of the criteria contained therein, whereas section 25-B dispenses with the assessment of value of each consignment but envisages fixation of valuation of the goods concerned till a notification remains in force. But such a notification cannot be static but is revisable from time to time on account of change in the international market as to the prices of the goods to be imported or exported."

9.It will be seen that what the Sindh High Court did was to attempt to save the validity of section 25B by construing it consistently with the language of section 25. This is an illustration of what is sometimes termed the principle of "reading down" a statute in order to save it. If a section is so construed it can escape from being struck down on account of being ultra vires. We agree with this approach of the High Court and approve it. There can be little doubt that on a literal interpretation section 25B is indeed ultra vires. It follows therefore that notwithstanding the very wide language used in section 25B the powers exercisable by the CBR thereunder are to be limited and constrained by section 25 which is the substantive section of law for the fixation of prices. The CBR does not have, and cannot be allowed to have, unfettered discretion. The exercise of any discretionary power must be rational and have a nexus with the objective of the underlying legislation. Arbitrariness is the antithesis of the rule of law. The legislature, when it confers a wide ranging power, must be deemed to have assumed that the power will be, firstly, exercised in good faith, secondly, for the advancement of the objects of the legislation, and, thirdly in a reasonable manner. Section 24A of the General Clauses Act, 1897, reiterates the principle that statutory power is to be exercised "reasonably, fairly, justly and for the advancement of the purposes of the enactment" and further clarifies that an executive authority must give reasons for its decision. Any action by an executive authority which is violative of these principles is liable to be struck down. No other view is permissible."

10.In the well known case of "Amanulla Khan and others v. The Federal Government of Pakistan through Secretary, Ministry of Finance, Islamabad and others (PLD 1990 SC 1092) this Court laid down the principle of sinictured discretion:---

"Wherever wide-worded powers conferring discretion exist, there remains always the need to structure the discretion and it has been pointed out in the Administrative Law Tax by Kenneth Culp Davis (page 94) that the structuring of discretion only means regularizing it, organizing it, producing order in it so that decision will achieve the high quality of justice. The seven instruments that are most useful in the structuring of discretionary power are open plans, open policy statements, open rules, open findings, open reasons, open precedents and fair informal procedure. Somehow, in our context, the wide worded conferment of discretionary powers or reservation of discretion, without framing rules to regulate its exercise, has been taken to be an enhancement of the power and it gives that impression in the first instance but where the authorities fail to rationalize it and regulate it and regulate it by Rules, or Policy statements or precedents, the Courts have to intervene more often, than is necessary, apart from the exercise of such power appearing arbitrary and capricious at times."

The above passage was cited with approval in Abid Hasan v. PIAC (2005 SCMR 25) and further reliance was placed on a related passage at p.35 which reads as under:--

"14. In his Treatise 'Discretionary Powers' which is Legal Study of Official Discretion D.J. Galligan has acknowledged that "the general principles that discretionary decisions should be made according to rational reasons means; (a) that there be findings of primary facts based on good evidence, and (b) that decisions about the facts be made for reasons which serve purposes of the statute in an intelligible and reasonable manner". According to the celebrated author, the actions which do not meet these threshold requirements are arbitrary, and may be considered a misuse of power. (Emphasis provided)."

11.It will be noted that the decision in the case of Amanullah Khan has laid down, within the span of a few sentences, important principles for structuring discretion. The cited passage takes cognizance of the fact that where no rules have been framed to regulate the exercise of discretionary powers, executive authorities have erroneously construed this to be an enhancement of the statutory power conferred on them.

This practice has been deprecated. The necessary consequence flowing from this erroneous view has also been set out namely, that where the authorities fail to regulate their discretion by the framing of rules, or policy statements or precedents, it becomes mandatory for the courts to intervene in order to maintain the requisite balance for the exercise of statutory power.

12.On the basis of the above, we can briefly summarize the applicable principles.

The first principle which can be laid down is that the exercise of power thereunder has to be based on concrete evidence. In other words there has to be evidence relating to the import of goods on the basis of which the valuation process is to be carried out. Put some what differently, what this implies is that it is not open to the CBR, or the Controller of Valuation to exercise arbitrary power of valuation which are not rooted in hard evidence, or are essentially speculative in nature.

The second principle which flows from the above is that the evidence must be based, and linked, with the country of origin of the goods. This also is obvious since, as is well known, there are countries in which price levels are substantially higher or lower than those of other countries. Similar, or apparently similar goods can be sold at widely different prices depending on, for example, whether the country of origin is China or Germany or Switzerland.

The third principle is based on a recognition of the inherent fluctuation of prices of commodities. These vary sharply from time to time. It necessarily follows that prices prevailing many months earlier can hardly be considered to be determinative of the current market price. Since prices may vary, not merely from month to month, but even day to day, it should be recognized that it may not be practicable to lay down a strictly applicable time frame. The general principle, however, can be enunciated that if market conditions have changed substantially then it is mandatory for the price fixing authority to take due notice of the same. In the facts, of the present case it is obvious that prices prevailing nine months earlier cannot, by any stretch of imagination, justify the price fixation exercise which was carried out then. A more realistic time period should have been utilised.

The fourth principle, which is relevant, is that the decision should be based on relevant facts and data and not on extraneous circumstances. Just as a decision which disregards relevant data is liable to be struck down, similarly a decision based on irrelevant data would be equally open to objection.

13.It is also necessary to set out clearly the distinction between an appeal and judicial review since that is relevant for the purposes of exercise of constitutional jurisdiction. An appellate court essentially stands in the shoes of a trial Court and re-examines the evidence as a whole. However, the nature of the jurisdiction in cases of judicial review is completely different. A constitutional court examines not merely the decision, but the decision making process in order to determine whether that was appropriate or not. It is neither necessary nor proper for the High Court to determine what was the price actually prevalent in the market place. What the court should do however is to examine the procedure which was adopted and followed by the Customs authorities. Was it done in good faith? Were the rules of natural justice followed? Was it based on the relevant criteria? Was any irrelevant factor taken into consideration? These are the types of questions which have to be answered. If the answer is in the negative, the determination will have to be struck down.

14.A perusal of the record indicates that the Assistant Controller of Customs Valuation filed a counter-affidavit in which he took up a categorical position in relation to how the ITP was fixed. He stated that the ITP of US $ 331 per metric ton, per the impugned Notification S.R.O. 356(KE)/91, dated 29-10-1991, was fixed on the basis of relevant evidence of physical imports. He also attached the evidence on the basis of which the price fixation took place.

15.When we examine the evidence we find that it consists of a single invoice issued by Kerry International Trading Limited, a company based in Hong Kong, which bears the date 26-3-1991. This shows that white sugar of the specifications given therein from Malaysia was being sold at a price of US $ 331 per metric ton for delivery in Karachi. A counter-affidavit was also filed by an Assistant Collector of Customs (Appraisement). It, however, confined itself to placing reliance on the decision of the Controller Valuation and states that the Collectorate merely implemented the decision as contained in the section 25-B notification dated 29-10-1991. It will be recollected that insofar as the appellant is concerned it had imported sugar from Thailand and thus the question immediately arises whether the price prevalent in another country could form the sole basis for the fixation of the ITP. This very question came up for consideration before this court in the case of Messrs Latif Brothers v. Deputy Collector Customs Lahore (1992 SCMR 1083). The following passage from the said judgment is relevant:--

"Section 25 of the Act deals with the determination of the value of the imported goods and is so far as relevant for the purposes of this appeal reproduced below:-

The value of any imported goods shall be taken to be the normal price, that is to say, the price which they would fetch (on the date referred to in section 30), on a sale in open market between a buyer and a seller independent of each other."

According to section 30, the value and rate of duty leviable on the imported goods are those which shall be in force for the goods meant for home consumption, like the consignment in dispute, on the date when the "Bill of Entry" is presented to the Customs Authority, section 25 speaks of "normal price" which is described as the price, the goods would fetch on sale in "open market" in a bona fide transaction. The "open market" here means the market in the country of origin and not at the place of importation. Thus, criterion for determination of the value of the goods should have been the prevailing commercial price in Thailand at the time of import and not the price obtaining in Singapore or other Far East Countries. Admittedly, the price list of similar goods of Thailand origin was not before the Authorities concerned when the appellant's consignment was evaluated."

16.It can be seen that the principle stated therein is clear and unambiguous. This is also in conformity with the dictates of common sense. If the valuation is to be carried out on a realistic basis it must be founded on the prevalent price at the place of origin of the goods. This criterion has clearly been violated in the facts of the present case.

17.The matter does not end there. It is of essence to note that the determination of the ITP should have nexus not merely with the price at the place of the origin of goods but also with the relevant time. International prices of commodities vary hugely with the passage of time. A valuation being purportedly put into effect in December, 1991 which is admitted to be based on the price which prevailed in March, 1991 is obviously clearly defective. The principle of law is that a notification issued under section 25-B should reflect a good faith valuation which is based on factual evidence prevalent at the relevant time. We quite appreciate the point that it may not be possible or practicable to have an exact correspondence with the price at the precise time in question but there should be a reasonable correspondence or nexus with the relevant time. What this reasonable time would be is a little difficult to state in the abstract since it will vary depending on the nature of the goods in question. It could be one month or perhaps two or three months. The point is it should be a reasonable period giving the facts and circumstances of the case. It is obvious that a fixation which is 9 months out of date cannot correspond with the requirements of law.

18.In the circumstances it is not possible to uphold the validity of the impugned notification which is liable to be struck down. In the circumstances since the precise fixation of the price is the prerogative of the Customs Department we remand the case to the dealing department for fixation of price afresh in terms of section 25-B of the Customs Act, 1969 as it was prevalent at the relevant time. If the appellant is aggrieved by the fixation it may avail the remedies available to it under the provisions of the Customs Act, 1969. This appeal is disposed of on the above terms.

MWA/M-7/SCOrder accordingly.