CREATIVE ELECTRONICS (PVT.) LTD. VS COLLECTOR OF CUSTOMS, 2016 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 536 (2015)

Customs Act (IV of 1969)---

----Ss. 16, 18, 19, 25, 32, 156(1), 9, 10-A, 14, 179(3) & 194-A---SRO No.575(I)/2006, dated 5-6-2006---Allegations of evasion of duty and taxes by mis-declaration of description of imported goods---Confiscation of goods and imposition of penalty---Appellant/importer, was alleged to be involved in evasion of duty and taxes by means of mis-declaration of description; and claiming illegal benefit of concession under S.R.O. No.575(I)/2006, dated 5-6-2006 and out of 22 consignments, 8 consignments had been imported by the appellant under illegal claim of concession under S.R.O. No.575(I)/2006 dated 5-6-2006, while rest of 14 consignments were cleared under mis-classification of PCT Heading 9028-9010 instead of actual PCT Heading 9028-9020---Appellant, in circumstances was found to have allegedly claimed exemption from duty and taxes for which he was not entitled---Amount so evaded was worked out to Rs.72,717,871, cognizable under Ss.16, 18, 32 of the Customs Act, 1969, and punishable under Ss.156(1), 9, 10-A, 14 read with S.R.O. No.575(I)/ 2006 dated 5-6-2006---Appellant being engaged in manufacturing of Electric Meter had imported the accessories and other parts of electric meter---Said imported parts were used in the manufacturing of single as well as three phase electric meters, which had been enjoying concessionary duty under Serial No.21 of S.R.O. No.575(I)/2006 dated 5-6-2006---Import of appellant, in circumstances, was in consonance with provisions of SRO in question and not otherwise as alleged by the authorities---Allegation in the show-cause notice was not based on cogent reasons, but a result of a misleading assumption, which was bad in the eye of law---Provisions invoked against appellant, and impugned order-in-original were not sustainable in the eye of law---Authorities had failed to point out or produce any evidence that out of 22 consignments, 8 were imported by the appellant under inadmissible claim of concession of SRO, while the rest 14 consignments were cleared by mis-declaration as alleged by the authorities---Under provisions of S.179(3) of Customs Act, 1969, order was to be passed within 180 days of issuance of show-cause notice, but in the present case impugned order was passed after lapse of 75 days which was an inordinate and unexplained delay, even after deducting the period of six months of stay order---Second show-cause notice served upon the appellant, was in respect of same goods and the same period---Such practice being not warranted under the law, was void ab initio---Order-in-original passed by Collector Customs (Adjudication), was set aside along with show-cause notice, in circumstances.

M. Afzal Bhatti for Appellant.

Muhammad Saleem, A.O. for Respondents.

Date of hearing: 7th January, 2015.

JUDGMENT

CHAUDHARY MUHAMMAD TARIQ, CHAIRMAN.---This appeal has been directed against Order-in-Original No.37 of 2013 dated 31.05.2014 passed by the Collector Customs (Adjudication-II), Custom House, Karachi.

2.The brief facts of the case are that the Directorate General of Intelligence and Investigation-FBR (Regional Officer), Lahore had reported vide Contravention Report C. No.IIB(App)Eng/Creative Electronics/102/2011/4468 dated 21-04-2012 that the importer Messrs Creative Electronics (Pvt.) Ltd., 160-s Quaid-e-Azam Industrial Estate, Kot Lakhpat, Lahore, are involved in evasion of duty and taxes by means of mis-declaration of description and claiming illegal benefit of concessionary S.R.O. 575(I)/2006 dated 05-06-2006 on the import of PCBA+Meter components for Single/ 3-Phase Electronics Meters calibrated with MDI. The source further added that the said unit claimed and obtained the exemption under the said SRO, which was specifically meant for plant, machinery, equipments and apparatus, including capital goods for manufacturing of electricity meters whereas. The said unit imported parts and components of the electronic meters for which they were not entitled. The SRO against which inadmissible exemption has been obtained in terms of S.No.21 is reproduced below:--

"S.R.O. 575(I)/2006.---In exercise of the powers conferred by Section 19 of the Customs Act, 1969 (IV of 1969), and clause (a) of subsection (2) of Section 13 of the Sales Tax Act, 1990, and in supersession of its Notification No. S.R.O.575(I)/2005, dated 6th June, 2005, the Federal Government is pleased to exempt plant, machinery, equipment and apparatus, including capital goods, specified in column (2) of the Table below, falling under the HS Codes specified in column (3) of that Table, from so much of the customs-duty, specified in the First Schedule to the said Act, as is in excess of the rates specified in column (4) thereof, and the whole of Sales Tax leviable under the Sales Tax Act 1990, subject to the following conditions, besides the conditions specified in column (5) of the Table, namely:-

Explanation:- Capital goods mean any plant, Machinery, Equipment, spares and accessories, classified in chapters 84,85 or any other chapter of the Pakistan Customs Tariff, required for-

(a)The manufacture or production of any goods, and includes refactory bricks and materials required for setting up a furnace, catalysts, machine tools, packaging machinery and equipment, refrigeration equipment, power generating sets and equipment, instruments for testing, research and development, quality control, pollution control and the like;

(b)Use in mining, agriculture, fisheries, animal husbandry, floriculture, livestock, dairy and poultry industry; or

(c)Service sectors listed at Sr. No. 16 of the table below, and includes the items mentioned in clause (a) above.

3.During the course of investigation, the Directorate General of Intelligence and Investigation-FBR Lahore through a letter C.No. IIB(App) Eng/Creative Electronics/102/2011/1380 dated 18-10-2011 and reminder of even number dated 27.10.2011 asked Messrs Creative Electronics (Pvt.) Ltd., 160-s, Quaid-e-Azam Industrial Estate, Kot Lakhpat, Lahore for supply of complete import record w.e.f. July, 2008 under section 26 of the Customs Act, 1969. In response, M/s. Creative Electronics (Pvt.) Ltd., Lahore informed vide their letter dated 28.1.2011 that they were compiling the requisite record which would take some time. They also requested for grant of another seven days time. Another reminder letter dated 10.11.2011 was sent to the subject firm asking for the information. However, Messrs Creative Electronics (Pvt.) Ltd., Lahore vide their letter dated 14.11.2011 provided photocopies of their import record. The import data of the said firm was also retrieved from PRAL. Scrutiny of the said data revealed that M/s. Creative Electronics (Pvt.) Ltd., Lahore had imported 22 consignment of PCBA + Meter components for Single 1/3-Phase Electronics Meters calibrated with MDI from PaCCS, Karachi as per details given below:--

4.Allegedly, out of the above 22 consignments, eight consignments had been imported under illegal claim of benefit of concessionary SRO 575(I)/2006 while rest of the 14 consignments were cleared under mis-classification of PCT Heading as 9028-9010 instead of actual PCT Heading 9028-9020 chargeable to CD @ 25% M/s. Creative Electronics (Pvt.) Ltd., were thus found having allegedly claimed the exemption from duty and taxes, not otherwise entitled to them, on the components of electronic meters under the said SRO, which was meant for import of plant, machinery, equipments and apparatus, including capital goods, and having so managed clearance of goods through mis-classification depriving the exchequer of revenue as mentioned in column 7 of that report. The amount so evaded worked out to Rs.72,717,871/- cognizable under of Sections 16, 18, and 32 of the Customs Act, 1969, and punishable under sections 156(I). 9, 10-A, 14 ibid read with S.R.O. 575(I)/2006 dated 05.06.2006.

5.Accordingly on 20.04.2012 a Show Cause Notice was issued to the appellants and after fulfillment of codal formalities the matter was adjudicated upon. On 31.05.2014 the Collector Customs (Adjudication-II), Karachi decided the matter in following terms:--

"I have gone through the record of the case and considered the written, and verbal submission both the respondent and the departments. The issue of misdeclaration to avail the benefit of S.R.O. 575(I)/2006 dated 05.06.2006 has been dealt with in order-in-original No. 36 of 2013-2014 dated 24.05.2014 the issue in this case is that clearances of Messrs Creative Electronics (Pvt.) Ltd, Lahore were effected at the value @ US $ 2.32 to 4.67 US$ per set/piece of single phase meter and three phase meter @ US $ 12.91 to 21.31 US $ per set/piece. For the same period, similar and identical imports by another Importer Messrs KBK Electronics (Pvt.) Limited Lahore reflects the values of single phase meter @ US $ 8.951 set/piece and three phase meter @ US $ 40 set/piece.

It has further been pointed out that the shipper of both the above importers is the same i.e. 'Hexing Electrical Co Ltd. China' and both importers are supplying the identical electronic meters after assembling these imported components to the same buyers in Pakistan i.e. Electricity Companies of the WAPDA.

It has also been informed that Messrs Creative Electronics (Pvt.) Ltd, Lahore had imported the same components of single phase electronic meters from China and got cleared from LAFU, MCC, Lahore vide GD Nos. LAFU-HC-0001848 dated 06.08.2008, HC-0034535 dated 31.01.2009 and HC- 0039605 dated 03.03.2009 at much higher values such as US $ 7.3200 to US $ 10.4191.

M/s Creative Electronics (Pvt.) Ltd. did not prefer to contest the specific charges of misdeclaration of value either in their written reply or verbally during the hearing proceedings. The fact that M/s. Creative Electronics (Pvt.) Ltd, themselves imported and cleared consignments from Lahore at values much higher than the ones they declared at Karachi for the same goods, from the same supplier is hard to ignore. The fact that the assemblies are the same as those imported by KBK Electronics (Pvt.) Limited Lahore, from the same supplier to the same buyers but at significantly reduced values at import stage clearly establishes that they had misdeclared the value of their imports to evade Custom Duty and taxes to the tune of Rs.262,419,830/-. The fact that they preferred not to respond to this allegation further proves that they had no explanation for this blatant tax evasion.

The importer representative had issued a point that two show cause notices on the same subject for the same period and the same goods have been issued as already pointed out and that the first show cause notice therefore, needs to be withdrawn without any further proceedings. The detecting agency was asked to respond to this concern, who explained that initially a case of misdeclaration was detected in regards to the value of imported goods for which contravention report No. 02/2012 dated 12.04.2012 was issued. However, later on it transpired that the respondents Messrs Creative Electronics (Pvt.) Ltd., Lahore had also mis-declared and got cleared their goods by availing the benefit of S.R.O. 575(I)/2006 in respect of the same imports for which the earlier Contravention report had been issued. Accordingly a second contravention report for mis-declaration for illegally having goods cleared under S.R.O. 575(I)/2006 dated 05.06.2006 was issued vide No.21/2011 dated 21.04.2012. In view of this clarification, it is clear that there is no double jeopardy involved and both contravention reports are legal and are required to be adjudicated as per law.

The arguments advanced by the Importer's representative that the case is time barred is also not tenable under the law. Besides the fact that the importer had themselves preferred to file Constitutional petition and seek a stay Order which was valid for 6 months as per provisions of the Constitution of Pakistan. The importers' had also requested adjournment. The Federal Board of Revenue had by virtue of powers conferred under section 179(4) of the Customs Act, 1969 extended the time limit for finalization of adjudication of the case more than once due to the exceptional circumstances of creation of new Adjudication Collectorate and non availability of officers in addition to the circumstances stated above. The Federal Board of Revenue has vide its order No. 5(6) Cus.Jud/2014 dated 9th April 2014, in exercise of the powers conferred under subsection (4) of section 179 of the Customs Act, 1969, extended the time limit for adjudication of this case up to 30.06.2014 and had directed that the case be finalized within this extended time.

In view of the above legal and factual position, the charges leveled in the Show Cause Notice No. MCC/ SCN-7/DIT-LHR/ Cont-2/Creative Electronics/ADC-ADJ/PaCCS/2012 is fully established against the importer/ respondent namely Messrs Creative Electronics (Pvt.) Ltd., 160-s, Quaid-e-Azam Industrial Estate, Kot Lakhpat Lahore, I, therefore, order the importer/ respondent to deposit the evaded government revenue amounting to Rs.262,419,830/- (Customs Duty Rs.125,559,727/-, Sales Tax Rs.100,447,782/- and Income Tax Rs.36,412,321/-. The offending goods in this case have already been released, therefore, the same cannot be confiscated at this stage. However, a personal penalty of Rs.15,000,000/ -(Rupees Fifteen Million) is also imposed on the importer/respondents M/s Creative Electronics (Pvt.) Ltd. 160-s Quaid-eAzam Industrial Estate , Kot Lakphat, Lahore, under clauses (14) of the Section 156(1) of the Customs Act, 1969."

6.Hence this appeal on the grounds mentioned in the body of appeal.

7.Learned counsel for the appellant challenged the impugned order on the ground of limitation and contended that the impugned order was void-ab-initio, having been passed in gross violation of section 179(3) of the Customs Act, 1969. It was further contended that show cause notice was issued on 29.05.2012 while the order- in-original was passed on 24.05.2014. The FBR granted extension on 09.04.2014, that too after expiry of statutory period provided under section 179(3) of the Customs Act, 1969.

8.Learned counsel further contended that the respondents grossly mis-interpreted the S.R.O. 575(I)/2006 dated 05.06.2006 and contended that capital goods meant any plant, machinery equipment spare and accessories classified in chapter 84/85 or any other chapter of the Pakistan Customs Tariff and as a result the respondent department wrongly classified the impugned goods. Therefore, the assessment of duties and taxes by the Director General I&I office which was upheld by the respondent No.2 in respect of imported consignments had no legal validity. So, the appeal be accepted and impugned order be set aside.

9.Conversely, the DR appearing on behalf of respondents vehemently opposed the grounds raised in the memo. of appeal and also arguments of learned counsel for the appellant and contended that the appellants were involved in evasion of duty and taxes by means of misdeclaration of description and claiming inadmissible benefits of S.R.O. 575(I)/2006 dated 05.06.2006. The imported items i.e. PCBA and Meter components of single and three phase electric meters calibrated with MDI were required to be cleared under statutory rate of Customs duty and taxes. The DR further contended that the appellant imported the impugned goods in SKD condition for assembly in to electronic meters of single 3 phase.

10.Regarding the time-bar issue, the DR contended that the impugned order was passed well in time. The appellant/importer themselves filed a constitution petition and got stay order which was valid for six months as described under the provisions of the Constitution of Pakistan. The appellant had been making an attempt to take the refuge under the banner of sheer technicalities. The imported PCBA and accessories and parts were not entitled for concessionary rate of Customs duty and taxes; therefore, appeal be dismissed and the impugned order be maintained.

11.Arguments of both the sides heard at considerable length and perused the record.

12.The appellants imported the accessories and other parts of electric meters because the appellants had been engaged in the manufacturing of electric meters, who after import of various parts of electric meters assembled them after putting-in more parts, programming, printed circuit board assembly and adding meter casing to make complete meter for sale in the local market. The imported parts were used in the manufacturing of single as well as three phase electronic meters and had been enjoying concessionary duty under serial No. 21 of the S.R.O. 575(I)/2006.

13.The arguments of appellants was that the S.R.O. 575(I)/2006 provided exemption from Customs Duty in excess of 5% and whole of Sales Tax for imported machinery, equipments and other capital goods imported by an industrial concern. The appellants/importer had been consistently allowed of their consignments since 2007 till 2011 at concessioned rate of 5% under serial No. 21 of the S.R.O. 575(I)/2006. However, due to different and misleading interpretation of the said SRO, the respondents, in their audit observation, held that completer electronic meters kits were imported in semi-knock down condition which, and thus were liable to be classified/assessed as complete and furnished article chargeable under PCT 9028.3000 attracting Customs Duty @ 25% Sales Tax @ 15-17%, Income Tax @ 2-5% and special Federal Excise duty @ 1% the appellant.

14.It is also alleged that the appellants imported 22 consignments out of which 8 consignments were imported under inadmissible claim of concession of S.R.O. 575(I)/2006 while remaining 14 consignments were cleared by misclassification of Pakistan Customs Tariff Code 9028.9010 instead of 9028.9020. The matter was adjudicated upon and the importer/appellants were directed to pay evaded duty and taxes of Rs.2,62,419,830/-. In addition, a personal penalty of Rs.1,50,00000/- was also imposed upon the appellants / importer.

15.Before dilating upon the crucial controversy between the appellants and the respondent, which pertained to the interpretation of S.R.O. 575(I)/2006 dated 05.06.2006, it would be pertinent to peruse the SRO along with serial No. 21 of its table, as reproduced hereunder:--

S.R.O. 575(I)/2006.---In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), and clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990, and in supersession of its Notification No. S.R.O. 575(I)/2005, dated the 6th June, 2005, the Federal Government is pleased to exempt plant, machinery, equipment and apparatus, Including capital goods, specified in column (2) of the table below, falling under the HS Codes specified in column (3) of that table, from so much of the customs-duty, specified in the First Schedule to the said Act, and is excess of the rates specified in column (4) thereof, and the whole of Sales Tax leviable under the Sales Tax Act, 1990. [provided that sales tax exemption shall not apply to Sr. Nos [1,5 [5A) 21, 22, 23, 28A, 29 and 36] of the said Table, subject to the following conditions, besides the conditions specified in column (5) of the Table.

Explanation:- Capital goods mean any plant, Machinery, Equipment, spares and accessories, classified in chapters 84,85 or any other chapter of the Pakistan Customs Tariff, required for-

(d)The manufacture or production of any goods, and includes refectory bricks and materials required for setting up a furnace, catalysts, machine tools, packaging machinery and equipment, refrigeration equipment, power generating sets and equipment, instruments for testing, research and development, quality control, pollution control and the like;

(e)Use in mining, agriculture, fisheries, animal husbandry, floriculture, livestock, dairy and poultry industry; or

(f) Service sectors listed at Sr. No. 16 of the table below, and includes the items mentioned in clause (a) above.

(g)

16.In the preamble of the SRO, machinery, plaint, equipment, apparatus including capital goods are exempted from levy of duty and taxes. When we go through the explanation clause to the above SRO, the capital goods have specifically been defined saying that capital goods means any plant, machinery, equipment, spares and accessories classified in chapter 84,85 or any other chapter of the Pakistan Customs Tariff required for 'the manufacture or production of any goods which attract Customs Duty @ 5% under serial No. 21 of table of S.R.O. 575(I)/ 2006.'

17.There is no denial from the respondent that the impugned goods were parts and accessories of electricity meters which were thereafter used for the manufacture of electric meters of single phase and 3 phase. Therefore, the import of the appellant was in consonance with the provisions of S.R.O. 575(I)/2006, and not otherwise as alleged by the respondents. Hence, Rule 2(a) of General Rules of interpretation of Harmonized system would not be applicable to the case in hand.

18.We are also of the unanimous view that the allegation in the show cause notice is not based on cogent reasons but results from a misleading assumption, which is bad in the eye of law. The explanation of S.R.O. 575(I)/2006 has to be read and deciphered according to its plain language. Thus the provisions invoked against the importer/ appellants in the show cause notice and the order-in-original are not sustainable in the eye of law.

19.This Tribunal has also observed that in view of the concession of S.R.O. 575(I)/2006 vide serial No. 21, the respondents cannot confine the importer to PCT - 9028.9020.

20.This Tribunal has also observed that the DR appearing on behalf of respondent failed to point out or produce even an iota of evidence that out of 22 consignments, eight consignments were imported under inadmissible claim of concession of S.R.O. 575(I)/2006 while the rest 14 consignments were cleared by mis-declaration.

21.The next crucial question of law in this appeal pertained to the fact whether the impugned order is a legal order in terms of section 179(3) of the Customs Act, 1969 or otherwise.

22.The provisions of Section 179(3) of the Customs Act, 1969 are reproduced hereunder:-

"The cases shall be decided within [one hundred and twenty] days of the [issuance of show cause notice] or within such period extended by the Collector for which reasons shall be recorded in writing, but such extended period shall in no case exceed [sixty] days.

[provided that any period during which the proceedings are adjourned on account of a stay order or alternative dispute resolution proceedings or the time taken through adjournment by the petitioner not exceeding thirty days, shall be excluded for the computation of aforesaid periods]"

23.In the instant case, show cause notice was issued on 29.05.2012. The period of 120 days lapsed on 24.09.2012. While the final order was passed on 24.05.2014. Amazing aspect of this case is that on 09.04.2014, the FBR extended the period of sixty days, when the statutory period had already expired. That being so, any extension of period has no sanctity in the eye of law and it could be construed nothing but a nullity in the eye of law.

24.There is also a mention of a stay order given by the Honorable High Court in this case but the position still remains the same. A stay order comes to lapse automatically after expiry of six months i.e. after 180 days of passing of stay order. The provisions of section 179(3) provide that an order shall be passed within 180 days of the issuance of show cause notice but in the case in hand, the impugned order was passed after lapse of 755 days which is an inordinate and unexplained delay even after deducting the period of six months of stay order.

25.This Tribunal has further observed that the second show cause notice, served upon the appellants/ importer was in respect of same goods and the same period. This practice is not warranted under the law and is a void-ab-initio.

26.In view of the above, this appeal is accepted as prayed. The impugned order-in-original passed by Collector Customs (Adjudication-II) Karachi, along with the show cause notice is set aside.

HBT/13/Tax(Trib.)Appeal accepted.