INTERLINK INTERNATIONAL, PESHAWAR VS The ADDITIONAL COLLECTOR CUSTOMS (ADJUDICATION), 2017 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 1792 (2016)

Customs Act (IV of 1969)---

----Ss. 32, 25, 26 & 156(1)(10-A)(14)---Valuation Ruling No.203, dated 30-12-2009---Misdeclaration---Evasion of tax and duty---Importer was alleged to have knowingly and wilfully managed to obtain clearance of imported goods through misdeclaration of rate in violation of Valuation Ruling No.203, dated 30-12-2009 and evaded duty and taxes to the tune of Rs.14,96,302 by contravening the provisions of Ss.26, 32(2)(3), punishable under S.156(1)(10-A)(14) of Customs Act, 1969---Additional Collector (Adjudication) vide impugned order-in-original, directed that amount of duties and taxes, as pointed out by audit, should immediately be paid by the importer---Penalty of Rs.50,000 was also imposed on the importer---Department had failed to produce any direct evidence against the taxpayer as provided under Art.117 of the Qanun-e-Shahadat, 1984---Departmental representative, conceded that grounds on which customs department had proposed to take action against the importer, were never revealed in the show-cause notice---Initiation of action against the importer, in circumstances, was in violation of the provisions of S.180 of the Customs Act, 1969, as the very essence of any notice was to enable any person affected thereby be known the particulars of the charges mentioned in the notice---Basis of allegations, was not known to the importer---No chemical examination of any laboratory, had been produced by the department to substantiate that lead acid batteries (imported goods) fell under P.C.T. Heading 8507.2090---Show-cause notice issued to the importer was time barred having been issued beyond the time limitation of 5 years---Paramount duty of the Customs department was that before embarking upon any allegation, the functionary must already possess some definite material so as to establish any illegal action having been taken by the importer---Impugned order-in-original, in circumstances, would not stand the thrust of actual and prime course of justice---Same was set aside to the extent of importer.

1992 SCMR 1898; 2001 SCMR 838; PLD 1998 SC 64; 2011 SCMR 1279 = 2011 PTD 2220; PLD 1962 Dacca 162 + 14 DLR (1962) 296; PLD 1970 Dacca 43; 2012 PTD (Trib.) 1697; 2006 PTD 2209; 2009 PTD 1835; 2011 PTD (Trib.) 174; 2005 PTD (Trib.) 135; 2009 PTD 467; 2009 PTD 281 and 2004 PTD 1048 ref.

Danish Ali Qazi for Appellant.

Muhammad Azeem, DS and Ruhul Amin, Inspector, Customs for Respondents.

Date of hearing: 8th March, 2016.

JUDGMENT

CH. MUHAMMAD SHAHBBIR GUJJAR, MEMBER (JUDICIAL).---This appeal filed by Messrs Interlink International, Peshawar (Appellants herein) is against the Order-in-Original No.23/2015 dated 26.06.2015 passed by the Additional Collector (Adjudication) Customs, MCC, Peshawar.

2.Brief facts of the case as per Order-in-Original No.23/2015 dated 16.06.2015 are that after Post Clearance Audit of Import Data of Mobile battery/charger of North based importers, it has been observed that M/s Interlink International, 12-Bilal Shopping Plaza, Kohati Gate, Jahangir Pura, Peshawar had imported 01 consignment from China consisting of mobile batteries (unbranded) and charger. At the time of assessment of the aforesaid goods, the valuation ruling No.203 dated 30.12.2009 had not been applied. As per valuation ruling, the assessable value of mobile battery (unbranded) and charger was fixed @ US $ 0.40 per piece (US $ 4.80 per dozen) and @ US $ 1.25 and 1.10 per dozen and charges @ US $ 1.25 per dozen. Resultantly, Messrs Interlink International, Peshawar evaded duties and taxes amounting to Rs. 14,96,302/-. Therefore, audit observation vide C. No. PCC/ Team-A/Audit/136/2011/94, dated 25.01.2001 was issued to the importer followed by several reminders.

3.From the foregoing, it was evident that Messrs Interlink International, 12-Bilal Shopping Plaza, Kohati Gate, Jahangir Pura Peshawar knowingly and willfully managed to obtain clearance of goods through mis-declaration of rate in violation of valuation ruling No.203 dated 30.12.2009. The importer evaded duties and taxes to the tune Rs.14,96,302/- and contravened the provisions of sections 26 and 32(2)(3) of the Customs Act, 1969 read with valuation ruling No.203 dated 30.12.2009, section 6(1) of the Sale tax Act, 1990, section 148 of the Income Tax Ordinance, 2001, sections 3, 4 and 10 of the Federal Excise Act, 2005 punishable under section 156(1)(10)A(14) of the Customs Act, 1969, sections 33(5)/34 of the Sale Tax Act, 1990 and 182(14) of the Income Tax Ordinance, 2001.

4.Subsequently, after completion of the requisite formalities, the matter was placed before Additional Collector (Adjudication) Custom House, Peshawar, who vide Order-in-Original No.23 of 2015 dated 16.06.2015 ordered that the amount of duties and taxes pointed out by audit may be immediately paid by the appellant Messrs Interlink International, 12-Bilal Shopping Plaza, Kohati Gate, Jahangir Pura, Peshawar and also imposed a personal penalty of Rs.50,000/- upon the importer. Hence, the instant appeal by the appellant on the following grounds:-

I.That impugned Order and Show-Cause Notice are erred both in law and facts and based on misreading and non-reading of evidence placed before it rather on conjectures and surmises, thus, not sustainable in the eyes of law.

II.That through instant proceeding, Respondents have profaned their mala fide.

III.That without prejudice, the whole proceedings are void ab initio and coram non judice as Show-Cause Notice has been issued beyond the time limitation of 5 years stipulated in section 32(2) ibid as in the instant case Show-Cause Notice has been issued on 18.02.2015 whereas GD No. PDRY-HC-783 was cleared on 29.01.10, thus, whole proceedings are nullity in the eyes of law. Reliance is placed on case laws reported as 1992 SCMR 1898, 2001 SCMR 838 and PLD 1998 SC 64.

IV.That without prejudice to above, though Show-Cause Notice has been issued beyond the 5 years limitation, yet Section 32(2) ibid has been invoked for mala fide reasons merely to bring the Appellant's case within 5 years stipulated therein, as evident from the fact that there is no allegation of forgery, fraud and collusion against the Appellant. In this regard kind attention is invited to case laws reported as 2011 SCMR 1279 = 2011 PTD 2220, PLD 1962 Dacca 162 + 14 DLR (1962) 296, PLD 1970 Dacca 43 and 2012 PTD (Trib.) 1697.

V.That besides above, here it is worth to mention that both subsections (2) and (3) of Section 32 cannot be invoked in the Show-Cause Notice at the same time, therefore, without prejudice one of the subsection needs to be dropped in view of various judgments of the superior courts. 2006 PTD 2209.

VI.That without prejudice, even subsection (3) of Section 32 ibid has been wrongly invoked, as whole audit exercise is based on examination of documents provided by the Respondent during filing GD, which as a matter of fact cannot be touched as evident subsection (3) of Section 32 ibid.

VII.That as a matter of fact as the proceedings are based on post clearance audit, therefore, at the most it falls under subsection (3A) of Section 3 ibid, hence, show-cause notice is otherwise liable to be withdrawn and Order-in-Original set aside, for being issued under wrong and irrelevant sections of law.

VIII. That without prejudice, as in the instant case, the show-cause notice is based on the post clearance audit wherein Appellant's import documents has been examined, therefore, even subsection (3A) of section 32 ibid could not have been invoked as evident from bare reading of subsection (3A) of section 32 ibid.

IX.That without prejudice, the adjudicating authority was not competent to adjudicate the matter, as post clearance audit falls under the jurisdiction of the officers of Directorate General of Post Clearance Audit (P.C.A) for which purpose an independent and separate Directorate General of Post Clearance Audit (P.C.A) has been created to carry out such audit under section 3DD of the Customs Act, 1969 read with notification No. S.R.O. 500(I)/2009 dated 13.06.2009 who have been entrusted with the powers, jurisdiction and functions to perform such duties and carry out the audit of all the imports across the country.

X.That Show-Cause Notice is bad in law firstly for not mentioning the detail of GD alleged and secondly for failing to provide the calculation of customs duty, sales tax and income tax, thus, due to aforesaid deficiencies in the Show-Cause Notice, Appellant is in dilemma as to how to respond to the allegations leveled against him which has rendered Appellant virtually handicap to even offer any thing in his defense, thus, the allegations are denied for lack of knowledge. Reliance is placed on 2009 PTD 1835.

Xl.That without prejudice, Show-Cause Notice issued under section 3 of the Sales Tax Act, 1990 is void ab initio as firstly Show-Cause Notice for recovery of the sales tax cannot be issued under Section 3 ibid which as a matter of fact is a charging provision, moreover, secondly under Chapter VI of the Sales Tax Act, 1990, an officer of the Customs is not an officer of Inland Revenue/Sales Tax and only an Commissioner Inland Revenue or an officer empowered by him can issue a Show-Cause Notice for recovery of sales tax.

XII.That without prejudice, similarly Show-Cause Notice issued under Section 3 of the Federal Excise Act, 1990 is void ab initio as firstly Show-Cause Notice for recovery of the federal excise cannot be issued under Section 3 ibid which as a matter of fact is a charging provision, moreover, secondly, an officer of the Customs is not an officer of Inland Revenue /Federal excise and only an Commissioner Inland Revenue or an officer empowered by him can issue a Show-Cause Notice for recovery of Federal Excise.

XIII. That without prejudice, similarly Show-Cause Notice issued under Section 148 of the Income Tax Ordinance, 2001 is also void ab initio as Show-Cause Notice for recovery of the income tax can only be issued by an officer of Inland Revenue / Income Tax and only an Commissioner Inland Revenue or an officer empowered by him can issue a Show-Cause Notice for recovery of income Tax.

XIV. That moreover as the demand of sales tax / federal excise / income tax relates to period prior to July-2014, therefore, keeping in view the Finance Act, 2014, wherein the word "tax" has been inserted in both subsections (2) and (3) of Section 32 ibid, therefore, even under the aforesaid two subsections, the demand of sales tax and income tax are unlawful.

XV.That without prejudice, post clearance determination of value of goods under subsection (5) of Section 25 of the Customs Act, 1969 by the audit team and adjudicating officer is void ab initio firstly for the reason that determination of value of the goods is the sole duty of assessing officer(s), secondly subsection (5) of Section 25 ibid can be invoked only during examination / assessment / clearance of goods and cannot be applied post clearance of the goods, thirdly subsection (5) of Section 25 ibid only come to action when the value of goods cannot be determined under subsection (1) of Section 25 whereas in the instant case, admittedly the value of goods were determined and there was no dispute on its value, thus, rendering whole exercise nullity in the eyes of law.

XVI. That without prejudice to the merit of the case and also to the fact that so far the audit report has not been shared with the Appellant, the whole exercise of audit contain certain short comings and mala fide as all the "Batteries" are assumed to be undervalued in terms of Valuation Ruling No. 203 dated 30.12.2009 without assigning any specific reason as to how the conclusion of such a classification has been reached.

XVII. That without prejudice to above, it is humbly submitted that Respondent has rightly declared the value of battery "Battery" as US$ 1.25 per dozen and 1.10 per dozen and "charger" as US$ 1.25 per dozen, thus, Valuation Ruling No. 203 dated 30.12.2009 is not applicable to the Respondent's import, therefore, the demand that "Battery" as US$ 4.80 per dozen and "charger" as US$ 3.00 per dozen, is also misconceived, mala fide and unlawful as all over the country identical goods have been assessed at value lower than what Respondent has declared.

XVIII. That here it is worth to note that on each and every consignment duties and taxes have been assessed in accordance with the prevalent value / market value, therefore, nothing adverse should have been assumed in the impugned audit.

XIX. The goods once cleared and assessed to duty and taxes could not be re-assessed under section 80 of the Customs Act, 1969 as there exists no provision where such goods could be re-assessed to duty and taxes after the same leave the Customs Dryport after clearance and having been made out-of-charge under section 83 of the Customs Act, 1969.

XX.That assessment of duty and taxes made by the Customs at the import stage was final in terms of Section 80 of the Customs Act, 1969. It was not a provisional assessment within the meaning of section 81 thereof. The assessed duty and other taxes were paid by the appellant and the Customs allowed clearance of the goods from the Customs area by making the same out of Custom charge thereby making the assessment a closed transaction which cannot be reopened.

XXI. That an order passed for the Clearance of imported goods under section 83 of the Customs Act, 1969 after having satisfied the correctness of the particulars of import, including declaration, assessment and considering the fact that the import of goods is not prohibited or in breach of any restrictions or conditions applying to the import of such goods could not be questioned.

XXII. That without prejudice, prosecution was, therefore, required to re-open the said Order under section 195 of the Customs Act, 1969 in case it was of the view that the order passed by the competent officer under section 83 of the Customs Act, 1969 was suffering from any illegality or impropriety.

XXIII. That without prejudice in the instant case goods were examined and assessed by competent customs officer, therefore, at such a belated stage challenging both classification and valuation is barred by law as once the consignment is examined, assessed, out of charged, removed from customs area, it becomes past and closed transaction as evident from judgments reported as 2011 PTD (Trib.) 174, 2005 PTD (Trib.) 135.

XXIV. That it has also been held that by the superior court in a case reported as 2009 PTD 467 that "after assessment has become out of charge, invoking provision of section 32 on the basis of another ruling does not find support from the language of section 32". In the aforesaid judgment, it has also been held that "Section 32 does not speak of ignorance of the applicable value at all". Reliance is also placed on 2009 PTD 281.

XXV. That the whole cause is based on the supposition that goods should have been assessed, classified, valued and charged on such and such heading and valued at such and such rate, however, it has been held in the aforesaid citation that "Section 32 should not be invoked only on the basis of the mere estimates, gossips, personal whims or feelings that the value could have been enhanced or it could fetch more".

XXVI. That Show-Cause Notice is also hit by Section 29 of the Customs Act which provides that once goods have been removed from the customs area, its declared value, quantity and description thereof cannot be questioned.

XXVII. That from the above, it is quite clear that after clearance of goods and removal of consignment from customs area, customs authorities are functus-officio is re-open the case again as it becomes past and closed transaction.

XXVIII. That without prejudice Show-Cause Notices instead of admitting the failure on part of the appraising and assessing staff to perform their duties within the meaning of section 199 of the Customs Act, 1969 and also Sections 25, 80 and 83 ibid, has burdened the respondent with the charge of misdeclaration within the meaning of subsections (3) and (3A) of Section 32 and officials/officers responsible for such lapse have not been slightly edged to come forward and defend their position for the charges which obviously relate to them.

XXIX. That without prejudice to the merit of the cause with all due respect it is humbly submitted that impugned Cause is against the principle of consistency and natural justice as any misjudgment if at all could be attributed to the Importer / Clearing Agent, the same is true for the Custom Officer who examined and assessed the consignment, however, their cause if at all has been condoned.

XXX. That from the above, it is evident that Audit Officer has picked the GD in blatant violation of principles of law wherein choose and pick for mala fide reasons are not permissible.

XXXI. That under the circumstances, the Respondent being dealt discriminately by the Department in violation of Articles 4, 18 and 25 of the Constitution.

XXXII. That it was also hold by the Superior Courts that mense rea or wilful default are essential ingredient for imposing penalty and in the present case no mense rea or willful default can be attributed to the Appellant. Attention is invited case reported as 2004 PTD 1048, PTCL 2005 CL 335(sic):

XXXIII. That without prejudice a case of legitimate error could not be equated with a willful evasion specially when there is no motive for evasion involved, thus under the circumstances of the case, the Appellant is not liable to any penal provision of Customs Act, 1969.

XXXIV. That without prejudice of the other submissions, in Show-Cause Notice there is no mens rea attributed to the Appellant, hence, no punitive provision of the Customs Act, 1969 is attracted to the Appellant cause, thus, penalty imposed is not sustainable.

XXXV. That penalty under section 156 of the Customs Act, 1969 are not an intractable liability of a tax payer in as much it all depend upon the attitude of the tax payers in suffering the default which if not deliberate, intentional, or contumacious would qualify for being visited the same. In this regard attention is invited to PLD 1991 SC 963.

XXXVI. That even otherwise, the invocation of section 156 of the Act is also against the norms of justice. The honourable Supreme Court of Pakistan in its judgment reported as GST 2004 79 settled the punitive provisions. The operative part is reproduced below for ready reference.

XXXVII. Each and every case has to be decided on its own merits as to whether the evasion or payment of tax was willful or mala fide, decision on which would depend on the question of recovery of additional tax. In fact and circumstances of this case, we find that non-payment of sales was within tax period neither willful nor it could be construed mala fide evasion or payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law."

5.During the course of arguments learned counsel for the appellant, while reiterating the above grounds of appeal, contended that the whole proceedings are void ab initio and coram non judice as Show-Cause Notice has been issued beyond the time limitation of 5 years stipulated in Section 32(2) ibid as in the instant case Show-Cause Notice has been issued on 18.02.2015 whereas GD No. PDRY-HC-783 was cleared on 29.01.10, thus, whole proceedings are nullity in the eyes of law. Reliance is placed on case laws reported as-1992 SCMR 1898, 2001 SCMR 838, PLD 1998 SC 64. He further contended that subsection (3) of section 32 ibid has been wrongly invoked, as whole audit exercise is based on examination of documents provided by the Respondent during filing GD, which as a matter of fact cannot be touched as evident subsection (3) of Section 32 of the Customs Act, 1969. The learned counsel stated that the adjudicating authority was not competent to adjudicate the matter, as post clearance audit falls under the jurisdiction of the officers of Directorate General of Post Clearance Audit (P.C.A) for which purpose an independent and separate Directorate General of Post Clearance Audit (P.C.A) has been created to carry out such audit under Section 3DD of the Customs Act, 1969 read with notification No. S.R.O. 500(I)/2009 dated 13.06.2009 who have been entrusted with the powers, jurisdiction and functions to perform such duties and carry out the audit of all the imports across the country. He submitted that the Show-Cause Notice issued under Section 148 of the Income Tax Ordinance, 2001 is also void ab-initio as Show-Cause Notice for recovery of the income tax can only be issued by an officer of Inland Revenue/Income Tax and only an Commissioner Inland Revenue or an officer empowered by him can issue a Show-Cause Notice for recovery of Income Tax. The counsel proceeded on to say that goods once cleared and assessed to duty and taxes could not be re-assessed under section 80 of the Customs Act, 1969 as there exists no provision where such goods could be re-assessed to duty and taxes after the same leave the Customs Dry Port after clearance and having been made out-of-charge under section 83 of the Customs Act, 1969 and that assessment of duty and taxes made by the Customs at the import stage was final in terms of Section 80 of the Customs Act, 1969. It was not a provisional assessment within the meaning of section 81 thereof. The assessed duty and other taxes were paid by the appellant and the Customs allowed clearance of the goods from the Customs area by making the same out of Custom charge thereby making the assessment a closed transaction which cannot be reopened. He submitted that an order passed for the Clearance of imported goods under section 83 of the Customs Act, 1969 after having satisfied the correctness of the particulars of import, including declaration, assessment and considering the fact that the import of goods is not prohibited or in breach of any restrictions or conditions applying to the import of such goods could not be questioned. He further submitted that it was has been held by the Superior Courts that mense rea or willful default are essential ingredient for imposing penalty and in the present case no mens rea or willful default can be attributed to the Appellant. He also relied on the case reported as 2004 PTD 1048, PTCL 2005 CL 335(sic) and lastly prayed for acceptance of the appeal.

6.On the other hand, Representatives of the respondent-department strongly opposed the contentions of the learned counsel for the appellants by supporting the impugned Order-in-Original and submitted that the appellant did not specifically declare the actual description of the batteries in the relevant GD and other allied documents with a mala fide intention to evade duty/taxes which was detected during the course of audit. This contention of the appellant that the documents presented by him were found true and correct is not base on fact as no invoice/packing list was found inside container as required under Rule 389 of the Customs Rules, 2001 for which a personal penalty of Rs.5000/- was imposed on him through a built-up mechanism in the WeBOC system. He further submitted that with a view to facilitate trade and to ensure speedy clearance of imported consignments, cursory examination upto the extent of 10% as required under the customs examination manual of the goods is carried and as such the possibility of omissions/oversights on the part of examiners cannot be ruled-out. For detection of such like fraudulent play on the part of tax evaders and rectification of omissions/oversights on the part of Customs periodical audits are conducted under the relevant provisions of law, which has overriding effect on the clearances sections, such as sections 79, 80, 81 and 83 of the Customs Act, 1969. The DR also contended that the appeals in the similar nature of cases have been dismissed by the Customs Appellate Tribunal, Islamabad Bench. He contended that in the WeBOC system uploading of images of each and every imported goods along with examination reports has been made mandatory and this has been done for proper identification of an item for correct classification. In the instant case the uploaded images clearly show actual description of the item. Act of the appellant of misclassifying the imported goods resulted in evasion of duty/taxes which is offence within the meaning of Section 32 of the Customs Act, 1969 which is punishable under Section 156(1) (14) of the Customs Act, 1969 besides initiation of proceedings of realization of the evaded amount of duty/taxes.

7.Both the parties heard. Record perused. When confronted with the submission of the learned counsel for the appellants that the prosecution has failed to produce any direct evidence against appellant as provided under Article 117 of the Qanun-e-Shahadat Order, 1984, whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist emanating from the Show-Cause Notice, the DR conceded that the grounds on which customs proposed to take action against the appellant were never revealed in the Show-Cause Notice. As such, initiation of action against the appellant was thus in violation of the provisions of Section 180 of the Customs Act, 1969, as the very essence of any notice is to enable any person affected thereby to know the particulars of the charges mentioned in the notice. In the impugned show-cause notice, the basis of such allegations is not known to the appellant.

8.Moreover, no chemical examination of any laboratory has been produced by the respondent-department to substantiate that the said lead acid batteries falling under P.C.T heading i.e. 8507.2090. During hearing, it was inquired from the representatives of the respondent as to whether department is in possession of any sample so as to refer the same to a laboratory for chemical analysis to know about its composition, however, the respondents reply was in negative. In such circumstances, no extra weightage can be given to a picture of the battery alone, the chemical composition of which cannot be ascertained at this stage especially when the picture (relied on by the respondents) do not show the constituents of the battery in question.

9.Furthermore, the learned counsel for the appellant has pointed out that Show-Cause Notice dated 18.02.2015 is time barred, being issued beyond the time limitation of 5 years as G.D. No.PDRY-HC-783 was cleared on 29.01.2010. It is well established principle of law that in taxation and financial matters, a public functionary either has to take acting within specified time, or take no action at all. The said principle has been reported in the judgments as 1992 SCMR 1898, 2001 SCMR 838 and PLD 1998 SC 64.

10.As regards the issue raised by the respondent department that no invoice was found inside the container is not tenable, because, it has attained finality and a personal penalty of Rs.5000/- was already imposed on appellant through a built-up mechanism in the WeBOC system and the appellant also paid the same before the clearance of goods. This has been a settled and long standing departmental practice which has been in vogue for years. During arguments, it was also contended by the respondent department in Para-7 of their parawise comments that the appellant did not specifically declare the actual description, while, on the other hand as evident from Para 2 of the impugned Show-Cause Notice the adjudication officer charged the appellant for violation of the provisions of subsections (3) and (3-A) of Section 32 of the Act, which relates to inadvertence, error or misconstruction. As such the stance/ submissions made by the respondent department are mutually contradictory. Subsection (2) and subsection (3) are two separate provisions of Section 32 which have no overlapping features, as the respondent department wishes to establish. Accordingly, it is evident that the said provisions of law are not attracted in this case. It was the paramount responsibility of the Customs that, before embarking upon any allegation the state functionary must already possess some definite material so as to establish any illegal action having been taken by the importer. Having said that the appeal is allowed and the impugned Order-in-Original No.23/2015 dated 16.06.2015 does not stand the thrust of actual and prime course of justice, hence the same is set aside to the extent of present appellant only.

HBT/131/Tax(Trib.) Appeal allowed.