APEX INTERNATIONAL VS DIRECTORATE OF INTELLIGENCE AND INVESTIGATION FBR, 2016 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 2891 (2014)

Customs Act (IV of 1969)---

----Ss. 3, 32(1)(2), 156(1), 10-A & 14---S.R.O. No.1125(I)/2011 dated 31-12-2011---S.R.O. No.898(I)/2013 dated 4-10-2007---Claiming concession as 'manufacturer' in respect of imported polyester fabric---Refusal of claim and imposition of penalty---Validity---Appellant/ importer, claimed concession as 'manufacturer' in respect of imported polyester fabric under SRO No.1125(I)/2011 dated 31-12-2011---Directorate of Intelligence and Investigation and Federal Board of Revenue confirmed that appellant did not have any manufacturing facility and that imported polyester fabric was not used as industrial input---Since, appellant was considered a commercial importer, and did not qualify for the concessionary rate of sales tax available to manufacturer, it was perceived that appellant had committed offence within the meaning of S.32(1)(2) of Customs Act, 1969 punishable under Ss.156(1), 10-A & 14 of the Act, read with relevant sections of Sales Tax Act, 1990 and Income Tax Ordinance, 2001---Department had alleged that the appellant intentionally and deliberately in league with clearing agent, through mis-declaration, had evaded amount of taxes to the tune of Rs.2,71,11, 524---Said amount was found recoverable under S.32(2) of Customs Act, 1969 read with S.36(1) of Sales Tax Act, 1990 and S.148 of Income Tax Ordinance, 2001---Penalty was also warranted under Ss.156(1), 10-A & 14 of Customs Act, 1969---Cognizance was taken by the authorities (DG (I&I) & FBR) for the matter of sales tax and income tax for which it had neither been delegated any powers by the Federal Board of Revenue in the notification, nor assigned any role under the Sales Tax Act, 1990 or Income Tax Ordinance, 2001---Customs authorities, including officers of the Directorate General (I&I) (Federal Board of Revenue) could not assume jurisdiction in sales tax or income tax matters, except the situations expressly provided in the relevant statutes---Contradiction existed in the statutory provisions invoked in the show-cause notice, and applied in the judgment---Order-in-original passed by adjudicating authority, could not travel beyond the show-cause notice---Authorities had made out case of recovery of allegedly evaded amount of sales tax at import stage, which action lacked legal veracity---Customs authorities, had no powers to recover the short paid sales tax, excise duty or withholding tax under the instrument of Customs Act, 1969, though they had powers to collect those levies at the import stage in the manner the customs duties were collected---Default surcharge, was not applicable to the appellant, who demonstrated a consistent behaviour of terms of discharging his liability under prescribed provisions of law---In view of said infirmities that the order-in-original suffered from, coupled with jurisdiction issues, it was held that impugned order-in-original in respect of the demand of default and penalty raised thereunder, was void and unsustainable---Default surcharge and penalty imposed, were omitted, and impugned order-in-original was modified to that extent; while appellant, would pay up the entire principal amount of the tax in the prescribed manner.

2004 PTD 2994; 2005 PTD 23; Jamil Brothers v. MCC Multan 2013 PTD (Trib.) 2082; Pioneer Industries v. Collector of Customs Multan 2013 PTD (Trib.) 1375; M.I. Traders v. Additional Collector 2014 PTD (Trib.) 299; Shujabad Agro v. Collector 2014 PTD 1963; PLD 1995 SC 963; PTCL 1995 CL 415; Collector of Sales Tax v. Associated Industries 2010 PTD (Trib.) 601 and Muhammad Hashim Paracha v. Collector of Customs (Appraisement) Customs, Excise and Sales Tax Appellate Tribunal Bench-III 2003 PTD (Trib.) 1902 ref.

Raza Ahmad Cheema for Appellant.

Ehsan Ullah Cheema for Respondent.

Date of hearing: 4th December, 2014.

JUDGMENT

GHULAM MURTAZA BHATTI, MEMBER (JUDICIAL).---The Appeal vide C.A. No.159/LB/2014 is directed against Order-in-Original No.44 of 2014, dated 09.07.2014 passed by Collector of Customs, Adjudication Lahore (Respondent No.2).

2.It had been reported by the Deputy Director, Intelligence and Investigation-FBR, Lahore vide Contravention Report in case number 05/Cont/2014-Lhr dated 08.04.2014 issued under endorsement C.No.IIB(Enf)Cont/Apex-Int/10/2014/4430 dated 16.04.2014 that an information was received to the effect that certain importers had got themselves registered as "manufacturers" under the Sales Tax Act, 1990 in order to claim the benefit of sales tax exemption in terms of S.R.O. 1125(I)/2011 dated 31.12.2011. Pursuant to the aforesaid information, suspected GDs were scrutinized. The data of such GDs were retrieved from WeBOC. The name and address of the importer was identified as Messrs Apex International, Lahore. Online verification regarding status of the importer revealed that the importer was registered as manufacturer/importer/exporter of textiles. The antecedents of the importer were further verified from the given address, which revealed that neither any manufacturing unit nor the importer existed on the said address.

3.Vide the relevant GDs, the Appellant claimed the benefit of S.R.O. 1125(I)/2011 dated 31.12.2011 which inter-alia provided concession from sale tax, among others, to the manufacturers/ commercial importers, etc. The queries made in this behalf revealed that the importer claimed concession as 'manufacturer' in respect of imported polyester fabrics of HS Code 5407.5200. As Per condition No.VII (a) of S.R.O. 1125(I)/2011 dated 31.12.2011, inserted vide S.R.O. 898(I)/2013 dated 04.10.2013, the import and supplies of fabric were to be charged to sales tax at the rate of three percent, besides 2% value addition sales charged on commercial import of fabric. The importer in the case was commercial one; as such in terms of the S.R.O. 1125(I)/2011, he was also liable to 2% value addition sales tax and 3% income tax as per Second Schedule to the Income Tax Ordinance, 2001. It was confirmed by the staff of Directorate of Intelligence and Investigation-FBR, Karachi that the importer did not have any manufacturing facility and as such the imported polyester fabric was not used as industrial input. The importer by claiming/paying sales tax @ 3% and income tax @ 1% on the imported goods thus claimed a benefit which was meant for the manufacturer and made a declaration in the relevant GDs which otherwise was false and untrue in material particulars. Since the importer was considered a commercial importer and did not qualify for the concessionary rate of sales tax available to manufacturer, it was perceived that he had committed an offence within the meanings of Sections 32(1) and 32(2) of the Customs Act, 1969, punishable under Section 156(1) 10(A), 14 ibid, read with Sections 2(37), 3, 4, 6, 33(4), 33(5), 33(11), 34, 36 and 71 of the Sales Tax Act, 1990, further read with Section 148(1) of the Income Tax Ordinance, 2001. As a result of these acts of omission and commission and false declaration, the importer was found liable to penal action; and the goods further chargeable to value addition sales tax @ 2% and income tax @ 2%. It was alleged that the importer intentionally and deliberately, in league with the clearing agent, through misdeclaration evaded amount of taxes to the tune of Rs. 2,71,11,524/- (value added sales tax Rs. 1,31,62,215/- and income tax Rs.1,39,49,309/-). The aforesaid amount was found recoverable under Section 32(2) of the Customs Act, 1969, read with Section 36(1) of the Sales Tax Act, 1990, further read with Section 148(1) of the Income Tax Ordinance, 2001. Penalty is also warranted under Sections 156(1) 10(A), 14 of the Customs Act, 1969, and Sections 33(4), 33(5) and 33(11) of the Sales Tax Act, 1990.

4.On the basis of above reported facts, vide Show Cause Notice C. No.27/Collector/ADJ/2014 dated 22.05.2014, the Appellants namely (i) Messrs Apex International, 152-A-III, P.G.E.C.H Society, Lahore (importer) and (ii) M/s Mirza Sons, 16-Temple Road, Lahore (Customs Clearing Agent), were charged with the aforesaid offence, cognizable and punishable under the legal provisions supra. The importer was called upon to explain as to why the duty and taxes amounting to Rs.2,71,11,524/- may not be recovered from him and he be penalized under the provisions as indicated.

5.We have examined the record of the case and heard rival parties. The case stems from admissibility or otherwise of concession envisaged in S.R.O. 1125(I)/2011 to the Appellant (importer), along with consequential withholding tax. The 44 GDs of the Appellant were scrutinized with a view to ascertaining whether benefit of S.R.O. 1125(I)/2011 was admissible to the Appellant or not. The investigation revealed that the Appellant claimed concession as "manufacturer" in respect of imported polyester fabric of HS 5407.5200. As per condition No.VII(a) of S.R.O. 1125(I)/2011 dated 31.12.2011, the import and supply of fabric was chargeable @ 3% sales tax along with value addition sales tax @ 2% and the income tax at the rate of 3% under the Clause 9(c), Part-II (reduction of tax rate), Section 148 of the Income Tax Ordinance, 2001, if the goods were imported by a commercial importer. As against this, the Appellant claimed the benefit available to a 'manufacturer' paying sales tax @ 3% and income tax @ 1%, only.

6.The cognizance was taken by the office of DG (I&I)-FBR, Karachi for the matter of sales tax and income tax for which, it had neither been delegated any powers by the FBR in the notification issued for its operations, nor assigned any role under the Sales Tax Act, 1990 or Income Tax Ordinance, 2001. Many case laws decided by superior courts also reflect that the customs authorities, including officers of the Directorate General (I&I-FBR) can not assume jurisdiction in sales tax or income tax matters except the situations expressly provided in the relevant statutes. The Respondent invoked the provisions of Sections 32(1) and 32(2) of the Customs Act, 1969, punishable under Sections 156 (1) 10A, 156(1) 14 ibid, but while finalizing the impugned order the Respondent abandoned the invocation of the clauses of the Customs Act, 1969, altogether. The Respondent invoked Sections 2(37), 3, 4, 6, 33(4), 33(5), 33(11), 34, 36 and 71 of the Sales Tax Act, 1990, in the Show Cause Notice. However, while summarizing the judgment in para 7(b), only Section 33(11) and default surcharge Section 34 (for surcharge) have been mentioned by the adjudicating officer. Similarly, the Show Cause Notice invokes Section 148 of the Income Tax Ordinance, 2001, while finalizing the judgment Section 205 of the Income Tax Ordinance has been invoked. There is an apparent contradiction in the statutory provisions invoked in the Show Cause Notice and applied in the judgment. It is a settled principle of law that order-in-original cannot travel beyond the Show Cause Notice.

7.As regards assumption of jurisdiction by the Deputy Director (I&I-FBR) Customs and the learned Respondent in the matters of recovery of sales tax and income tax, the statutory provisions of the statutes and many case laws are very clear on this issue.

8.Further on the jurisdiction issue, we find that the Respondent is an officer of customs as defined in Section 2(o) of the Customs Act, 1969. A officer of customs appointed under Section 3 of the Customs Act, 1969 is bound to operate within area of his jurisdiction as specified in the notification. If he operates outside the specified jurisdiction, his action will not only be militating the very provisions of Section 3 ibid but will be negating the relevant notification. In the instant case, the learned Respondent has made out case of recovery of allegedly evaded amount of sales tax at import stage and it was held in the judgments of the Honorable High Court of Sindh [2004 PTD 2994] and [2005 PTD 23] that such action lacked legal veracity. Similarly, in C.A. No. 253/LB of 2012 decided on 13th May 2013 [2013 PTD (Trib) 2082] the Customs Appellate Tribunal, in case of Jamil Brothers v. MCC Multan observed:--

"The contention of the learned Departmental Representative that Deputy Director, Intelligence and investigation-FBR, Range Office Mutton has only reported the contravention to the Collector of Customs (Adjudication) Multan by rightly exercising his powers is not tenable. Since charging clause/powers in term of section 32 of the Customs Act, 1969 were not vested with the Intelligence and Investigation department, therefore, the action on the part of the said officer was illegal. The judgment of the hon'ble High Court of Sindh at Karachi reported as 2004 PTD 2994 and 2005 PTD 23 are also fully applicable to the said issue. The contention of the learned counsel that the Collector of Customs (Adjudication), Mullen was neither competent nor authorized to issue show-cause notice and pass the impugned order for alleged evasion of taxes or for the offences of mis-declaration committed at Karachi is convincing. It is an admitted fact that the import and clearance of the goods took place at Karachi through Model Customs Collectorate of PaCCS Karachi where the import documents and GD were filed. The goods were examined, assessed and cleared by the said Collectorate. The offences of mis-declaration or as the case may be evasion of taxes, if any, also took place at Karachi and as such the Collector of Customs (Adjudication) Multan had no jurisdiction at all either to entertain contravention report or to issue show cause notice or to pass the impugned order. According to the ruling of FBR as contained in its directive dated 1-9-2009 and 5-10-2012, it is only the importing and clearing Collectorate which can take cognizance of such mis-declaration or as the case may be evasion of taxes, if any, made at import stage. Since the initial action of taking cognizance by the Deputy Director as well as Collector (Adjudication) Multan was without jurisdiction, thus, the entire subsequent proceedings including the impugned order would be rendered without jurisdiction, ab initio void and of no legal effect. The hon'ble Supreme Court of Pakistan in case "Mansab Ali v. Amir" (PLD 1971 SC 124) was kind enough to hold that "It is an elementary principle that if a mandatory condition was not fulfilled, then the entire proceedings, which follow become illegal and suffer from want of jurisdiction." In "Faqir Abdul Majeed Khan v. District Returning Officer and others" (2006 SCMR 1713), it was held by their Lordships that "By now it is well-settled that any order which suffers from patent illegality or is without jurisdiction, deserves to be knocked down". In "Saeed Farooq v. The State and 2 others" (1996 MLD 434), it was held that "Where a particular Court or forum has exclusive jurisdiction to proceed with a case, any attempt by any other forum to take cognizance of the matter or to institute proceedings would render cognizance and proceedings void ab initio and of no legal effect".

9.The Customs Appellate Tribunal vide case of Pioneer Industries v. Collector of Customs Multan [2013 PTD (Trib) 1375] decided as follows:--

"The offences of mis-declaration or as the case may be evasion of taxes, if any, also took place at Karachi and as such the Collector of Customs (Adjudication) Multan had no jurisdiction at all either to entertain contravention report or to issue show cause notice or to pass the impugned order. According to the ruling of FBR as contained in its directives dated 1-9-2009 and 5-10-2012, it is only the importing and clearing Collectorate which can take cognizance of such mis-declaration or as the case may be evasion of taxes, if any, made at import stage. Since the initial action of taking cognizance by the Deputy Director as well as Collector (Adjudication) Multan was without jurisdiction, thus, the entire subsequent proceedings including the impugned order would be rendered without jurisdiction, ab initio void and of no legal effect".

10.In the instant case the goods were imported and cleared from MCC Lahore and contravention for the alleged misdeclaration had been issued by office of DG (I&I)-FBR. The latter had no jurisdiction for initiation of any action under Section 32 of the Customs Act, 1969, as evident from the legal position explained above. It is therefore held that issuance of contravention report by an officer of Directorate General (I&I-FBR)/Customs was not within his competence; hence any further action in this regard was also not consonant with the legal position.

11.The Notification 967(I)/2007 dated 20.09.2007 issued by FBR under Section 3 of the Customs Act, 1969, does not envisage any concurrent powers for the officers of MCC Lahore with the officers of Inland Revenue over the territorial jurisdiction.

12.Many case laws suggest that customs authorities have no powers to recover the short paid sales tax, excise duty or withholding tax under the instrument of Customs Act, 1969 though they have powers to collect these levies at the import stage in the manner the customs duties are collected. The Customs Appellate Tribunal in case M.I. Traders v. Additional Collector [2014 PTD (Trib) 299] held:--

"12. I, therefore hold that the exercise of jurisdiction on this point by the respondent in addition to adoption of recovery proceeding by them is declared as ab-initio void and as such coram non-judice.

13. Even otherwise, the show cause notice is without mentioning the applicable provisions of Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal Excise Act, 2005, whereas charges against the appellant has been held by the respondent. Resultant, the respondent travelled beyond the charter of show cause notice, hence palpably illegal. It is settled law that where provisions in orders have/been invoked without their mention in the show cerise notice, such orders are held void of law. In case of Collector Central Excise and Land Customs and others v. Rahmdin reported as 1987 SCMR 1840, the Apex Court has held that:--

" .... Order of adjudication being ultimately based on a ground which was not mentioned in the show cause notice was palpably illegal on the face of it."

That no charge under section 32 of the Customs Act, 1969 can be invoked on the appellant (leveled in the show cause notice and held correct in order-in-original) as the rates of duty and taxes on the declared goods and found good are one and the same. This does in no way suggest the imposition of redemption fine for difference in declared and found goods. In consonance of the Act/Rules, sub-para B(ii) of para 101 of CGO 12/2002 dated 15-6-2002 is relevant and which directs the field formation that an importer may not be charged for misdeclaration under section 32 of the Customs Act, 1969, in the following situation:

(i)Where an importer makes a correct declaration on bill of entry or opts for 1st appraisement for determination of correct description, PCT heading of quantity of goods.

(ii)When a consignment is found to contain goods for description other than the one declared falling under separate PCT heading but chargeable to same rate of duty.

(iii)Where the description of goods is as per declaration but incorrect PCT heading has been mentioned in the bill of entry no mis-declaration case under section 32 of the Customs Act, 1969, be made out provided there is no change in the rate of customs duty as a result of ascertained PCT heading."

13.The Honorable Sindh High Court vide [2014 PTD 1963] in suit of Shujabad Agro v. Collector, decided on 16th May, 2014 held as follows:--

"73. In view of the above, I am of the considered opinion that defendants Nos.1, 2, 3, 4 and 5 have no jurisdiction/authority under law to undertake any exercise of determination, adjudication etc. in the matter vis-a-vis 2% 'Advance Tax' allegedly payable by the plaintiff [i.e. differential amount of 'advance tax' 5% - 3%] in view of 'REDUCED RATE CERTIFICATE' No.CIR[Z-1]/LTU/11-12/1344 dated 30-6-2012 [Annexure 'P/34']. Accordingly issue No.2 is answered in NEGATIVE."

14.Even the revisit to the sections of the Customs statutes invoked by the Respondent clearly reflects that the invoked provisions do not empower the customs officers to take cognizance of any issue under such provisions, which only confer the powers either on Income Tax authorities or Inland Revenue, as reproduced below:--

15.As regards merits for charging tax, default surcharge, etc., it seems that the provisions of Section 34 of Sales Tax Act, 1990 have not been considered as the said Section outlines a situation where a registered person does not pay the due tax or any part thereof; or makes adjustment which is not admissible to him, and then he becomes liable to payment of default surcharge under Section 34(1)(C); whereas in the instant case, the Appellant paid the tax as per the following details:--

16.The above details reflect that the Appellant had started making payment in order to liquidate his liability in a consistent manner. Therefore, to our minds, the provisions of Section 34 of the Sales Tax Act, 1990 would not be applicable to this case. Reliance is placed in case reported as [PLD 1991 SC 963], wherein the imposition of penalty was held illegal as the evasion was not willful. The Lahore High Court in case vide [PTCL 1995 CL 415] held that where the petitioner did not act mala fide with the intention to evade the tax, the imposition of penalty or additional tax or surcharge was not justified. Similar views were expressed in case [Collector of Sales Tax v. Associated Industries] and in case 2010 PTD (Trib.) 601. Therefore, we hold that default surcharge was not applicable to the Appellant who was demonstrating a consistent behavior in terms of discharging his liability, under a prescribed provision of the law. As regards the penalty equivalent to 100% of the tax evaded, along with the further @ 100% on the clearing agent, we believe that it cumulatively defies the legal provisions relating to penalty under Section 34 of Sales Tax Act, 1990. Further, as observed above, neither the provisions of Section 33(11) of Sales Tax Act, 1990 nor Section 182(1) 10 of Income Tax Ordinance, 2001, provide any room for customs officers to invoke such provisions. Section 182(1)10 specifically mentions "inland revenue authority" in all the sub-clauses (a), (b) and (c) of clause (10) to Section 182(1) of Income Tax Ordinance, 2001. Apart from that, Section 182(1) 10 of the Income Tax Ordinance, 2001 was not mentioned in the impugned Show Cause Notice, whereas reliance was placed on the said provision by the adjudicating officer while firming up his conclusion in the impugned order-in-original. As observed above, it is an established principle of the law that order cannot travel beyond the Show Cause Notice.

17.As regards penalty equivalent to 100% of the alleged evaded amount imposed on the clearing agent, besides the jurisdictional issues analyzed above, we further find that it is (i) without mentioning of any legal clause and thus untenable and (ii) it runs against the provisions of Section 209 of the Customs Act, 1969, as well which entails limited liability on the clearing agent vis-a-vis the principal. The reliance is placed on [Omalsons Corporation v. The Deputy Collector of Customs (Adjudication) Karachi-I Appeal No.K-1899/01 decided by Customs, Excise and Sales Tax Appellate Tribunal, Karachi]. [Muhammad Hashim Paracha v. Collector of Customs (Appraisement) Customs, Excise and Sales Tax Appellate Tribunal Bench-III 2003 PTD (Trib.) 1902.

18.In view of the above infirmities that the impugned order-in-original suffers from, coupled with jurisdiction issues as discussed, we hold that the impugned order-in-original in respect of the demand of default surcharge and penalty raised thereunder, is void and unsustainable, and that being so, the default surcharge and penalty imposed are remitted. The impugned order-in-original is modified to the said extent, while the Appellant shall pay up the entire principal amount of the tax in the prescribed manner, which, as appears from the table given vide para (15) above, he had already began doing.

19.This judgment shall also apply to Customs Appeal No.160/LB/2014 filed by Messrs Liberty Enterprises, Lahore, having identical points of law and facts.

HBT/9/Tax(Trib.) Order accordingly.