ALLAH WALA AUTO ENGINEERING VS DEPUTY COLLECTOR OF CUSTOMS, 2017 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 2201 (2017)

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

----Ss. 32, 32-A, 79 & 180---Show-cause notice---Preparation, issuance and scope---Show-cause notice, was a vital basic document, which was to be prepared with utmost care after going through the provisions of the Act/Ordinance---Cosmetic show-cause notice was not a legal document---Authority, issuing show-cause notice after the establishment of charge, was to carefully go through the facts of the case and applicable provisions of the Act alleged to be contravened and the penal clauses attracted----Decision on any fresh ground, which was not spelled out in the show-cause notice, was not permitted---Provisions of law which were not applicable and were invoked, would render the show-cause notice palpably illegal---Proceedings before Adjudicating Officer, were in the nature of quasi judicial proceedings and issuance of notice under S.180 of the Customs Act, 1969, was very important document---Decision to issue show-cause notice, was to be taken by the Collector Adjudication, by application of independent mind and not merely signing the draft show-cause notice submitted by the Investigation Agency, separate from the Adjudication Department---Each category of officers were required to perform their respective functions/duties under the law---Practice to submit draft show-cause notice by the Director General of Intelligence and Investigation to the Collector Adjudication was depreciated---While passing order-in-original/appeal, it was mandated upon the adjudicating authority to examine the charter of show-cause notice and remain within its ambit---Where order so passed was beyond the charter of the show-cause notice, same would be deemed to be illegal---Appellate Tribunal, in such a situation would have no after option but to declare the notice to be suffering from legal infirmity and void.

Messrs Zeb Traders v. Federation of Pakistan 2004 PTD 369; Asst. Collector v. Khyber Elec. Lamps 2003 PTD 1275; D.G. Khan Cement v. Collector of Customs 2005 PTD 480; Caltex v Collector 2003 PTD 1593; Union Playing Card Company v. Collector of Customs 2002 MLD 130; Atlas Tyres v. Addl. Collector 2002 MLD 180; State Cement v. Collector PTCL 2001 CL 558; Kashmir Sugar v. Collector 1992 SCMR 1898; Rose Color v. Chairman, CBR 2013 PTD 813; Collector Excise and Land Customs and others v. Rehm Din 1987 SCMR 1840; Adam v. Collector of Customs, Karachi PLD 1969 SC 446; Muhammad Sadqain v. Collector of Customs (Appraisement) 2006 PTD 2742 and Messrs Exide Pakistan Ltd. v. Deputy Collector of Customs (Adjudication-III), Karachi, 2004 PTD 1449 ref.

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

----Ss.2(kka), 25, 25-A & 32---"Declaration"---Meaning---Assessment---Mis-declaration---Where any assessment for levy of duty and taxes was being made with the application of valuation ruling issued by Director, Directorate General of Valuation under the provision of S.25-A of the Customs Act, 1969, retrieved invoice; whether of higher or lower value as against declared, was of no significance even if it was a transaction value within the meaning of S.25(1) of the Customs Act, 1969---'Customs Value' as determined under S.25-A of the Customs Act, 1969, with the application of different subsection of S.25(1) of the Customs Act, 1969 in sequential manner, notwithstanding the retrieved invoice was not to be considered as declaration within the meaning of S.2(kka) of the Customs Act, 1969---Entire proceedings in the present case, right from framing of contravention report till issuance of order was based on mala fide and caprice which was of no legal effect and ab initio void.

Nadeem Ahmed Mirza, Mirza Abeer, Consultants and Obaid Mirza for Appellants.

Mahmood ur Rehman Khattak, Deputy Collector along with Masood Ahmed, Appraiser for Respondents.

Date of hearing: 18th January, 2017.

JUDGMENT

MUHAMMAD NADEEM QURESHI, MEMBER (JUDICIAL-I).--Through this order, I intend to dispose off Appeal No. K-178/2016 directed against the Order-in-Original No.451106 dated 03.12.2015 passed by Additional Collector of Customs, Adjudication-I, Customs House, Karachi (here-in-after to be referred as respondent No. 2)

2.Briefly facts are that the appellant imported a consignment comprising of (i) 60 kgs Pnomatic Marking Machine (ii) 13712 Crank Casing Left & (iii) 9936 kgs Crank Casing Right Chong Qing Jeson Power Machinery Co., Ltd, China @ US$. 100/pc & US$. 3.60/kg i.e. US$. 71639.20 C&F Karachi vide invoice No. JP150601 dated 07.07.2015 & B/L No. 00LU2562602970 dated 08.07.2015. The appellant upon receipt of import documents, transmitted the Goods Declaration (hereinafter to be referred as GD) to the MCC of Appraisement (West) under Section 79(1) of the Customs Act, 1969 (hereinafter to be referred as Act) and Rule 433 of Sub-Chapter III of Chapter XXI of Customs Rules, 2001(hereinafter to be referred as Rules) and as per a pre-condition for availing the regime of WeBOC, deposited upfront duty and taxes of Rs.6,863,275.00 in National Bank of Pakistan, consequent to which his GD was allotted number: KAPW-HC-6604 dated 14.10.2015. Upon appearance of the GD on his desktop, the nominated Assessing Officer instead of completing the assessment on the basis of the declaration and scanned documents, opted to get the goods examined first under the provision of Section 198 and Rule 435 of the Act/Rules and to proceed with adduced his opinion and referred the GD to the Deputy Collector, Group-VII, MCC of Appraisement (West), Karachi (hereinafter to be referred as Respondent No. 1), who gave his assent and transmitted the GD to the Terminal, where the posted Officials of MCC of Appraisement (West), verified the declaration to the extent of description, quality and weight with the exception of value for which intimation was made that an invoice of US$. 77,054.00 has been found, which is excess by US$. 5,415/- which is equivalent to US$. 7.55% to the declared value. The assessing officer upon appearance of report on his desktop, completed the assessment through a valid assessment order in terms of Section 80 and Rule 438 of the Act/Rules at US$. 100,008.10 as against retrieved invoice of US$. 77,054.00 for levy of additional amount of duty and taxes of Rs. 2,984,453.00. in addition to paid upfront Rs. 6,863,275.00, totaling to Rs. 9,847,728.00. Despite of the said fact, the assessing officer framed contravention report with the allegation of misdeclaration of value, attracting the provision of sections 32(1), (A) and 79(1) of the Act. Section 3(1) of the Imports and Exports (Control ) Act, 1950, section 33 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, punishable under clauses (1) and (14) of Section 156(1) of the Act to be read with S.R.O. 499(I)/2009 dated 13.06.2009 and transmitted that to respondent No. 1, who after approving that referred that to Additional Collector, Law, who after agreeing to the opinion formed by respondent No. 1 and his subordinate transmitted that to respondent No. 2, who transmitted show-cause notice dated 19.10.2015 based on narrated fact and invoked provision of the Act/Ordinance, in the Contravention Report. The appellant submitted reply to the show-cause notice through which he informed him that in the case of the appellant assessment has to be made with the application of Valuation Ruling No. 685/2014 dated 15.09.2014, as per which the value comes to US$. 100,008.10 higher by US$. 22,954.10, which is 29.79% of the retrieved invoice, the respondent No. 2 was further informed that charge of misdeclaration of value could only be leveled on the basis of direct evidence (evidential invoice) of the same country of the period expressed in Rule 107(a) of Chapter IX of Rules and if the difference between declared and the evidential invoice is more than 30% as ordered by the Board in para 101 of CGO 12/2002 dated 15.06.2002 and clause (d) of 499(I)/2009 dated 13.06.2009, as against difference of 7.55% as reported in examination report/show-cause notice. In the narrated circumstances neither contravention report nor show-cause notice was warranted under law, therefore, same may please be vacated. The respondent No. 2 ignored the submission and the direction of the Board and passed order dated 03.01.2015, beyond the charter of show-cause notice and held the charges of mis-declaring of UOM, which is kg as against declared unit for avoiding application of valuation ruling. With this he held the charges as leveled in the show-cause notice as established and ordered confiscation of the goods subject to redemption of those upon payment of 20% fine, imposed penalty of Rs. 100,000.00, in addition to leviable duty and taxes. Paras 2 and 3 are relevant and are reproduced here-in-under:--

"I have gone through the case record and considered written/verbal arguments of the respondent and the department. The respondent imported the under reference consignment by declaring the goods as (i) New Pneumatic Marketing Machine W/Std Accessories under PCT heading 8479.82290 (ii) Crank Casing Left CG Spare Parts for Motorcycle under PCT heading 8483.1012 (iii) Crank Casing Right CG Spare Parts for Motorcycle under PCT Heading 8483.1012 at a declared invoice value of US$. 71,639.00 and sought clearance under self-assessment system. It has been alleged by the department that during the course of examination a higher value invoice of US$. 77,054.00 was found as against declared invoice value of US$. 71,639.20/ and sought clearance under self assessment system. It has been alleged by the department that during the course of examination a higher value invoice of US$. 77,054.00 was found against declared invoice value of US$. 71,639.20/-. The difference between declared invoice and found invoice is US$. 5,414.80/-. The availability of invoice with the imported goods is also otherwise mandatory as prescribed vide Rule 389 of the Customs Rules, 2001 notified vide SRO 450(I)/2001 dated 18.06.2001. It is observed that the invoice found from the container is 7.55% higher only and the department has assessed the goods in accordance with the values determined under Valuation Ruling No. 685/2014 dated 15.09.2014 @ US$. 3.95/kg i.e. US$. 99,848.10. Therefore, the value mentioned in the found invoice cannot be treated as Transaction Value. The found invoice has no consequential effects on customs duty and taxes as assessed by the department.

3. Scrutiny of record, further revealed that the importer declared Crank Casing Right/Left CG Spare Parts for Motorcycle, quantity 19872 pcs of unit price US$. 3.60/Pc. The respondent declared total value of parts as US$. 71,539.20. it is pertinent to mention that as per Pakistan Customs Tariff the unit of measurement for under reference parts is Kg. The department assessed the value of parts by applying Valuation Ruling No. 685/2014 dated 15.09.2014 @ US$. 3.95/kg, which comes to US$. 99,848.10. There is a substantial difference between the declared value and assessed value of US$. 2,8308.90. It is evident that the respondent has deliberately concealed and filed untrue declaration on the basis of Nos. instead of kg to get the goods released on suppressed value to evade legitimate amount of customs duty and taxes. Hence, the offence of untrue declaration/misdeclaration stands established. I therefore, order for confiscation of offending goods under section 156(1) clause 14, read with section 32(1)(2) and 79(1) of the Customs Act, 1969. However, an option under Section 181 of the Customs Act, 1969 is given to the importer to redeem the confiscated goods on payment of 20% redemption fine Rs. 596,525/- (Rupees five hundred ninety six thousand five hundred and twenty five ) in terms of S.R.O. 499(I)/2009 dated 13.06.2009 (of the value of offending goods) in addition to payment of duty and taxes chargeable thereon I impose a penalty of Rs.100,000.00 (Rupees one hundred) on the importer for violation of above mentioned provision of law.

3.The appellant filed the appeal on the basis of grounds enumerated therein. No cross objection under subsection (4) of section 194A has been filed within the stipulated period of 30 days by the respondent No. 1, instead the representative of the respondent made submission at Bar that the order passed by the respondent No. 2 is correct in fact and law be maintained while ignoring the technicalities, legal deficiencies/lacuna, etc, referred by the appellant in the grounds of appeal.

4.Rival parties heard and case record perused in addition with the relied upon citations. I am indebted to inscribe that show-cause notice is a vital basic document, which should be prepared with utmost care after going through the provision of the Acts/Ordinance, cosmetic show-cause notice is never been considered a legal document and for that reason the FBR and Superior Judicial Fora through direction/instruction issued from time to time or reported judgments made mandated for the show-cause issuing authority to carefully go through the facts of the case and applicable provision of the Act alleged to be contravened and so the penal clauses so attracted for penalizing after establishing of the charges. Decision on any fresh ground, which was not spelled out in the show-cause notice is not permitted. Similarly, any provisions of the Act/Ordinance, which are not applicable and were invoked or irrelevant Sections are invoked, renders the show-cause notice palpably illegal. Judgment of High Court of Sindh reported at 2004 PTD 369 in the case of Messrs Zeb Traders v. Federation of Pakistan is relevant, wherein, it has been held that "The proceeding before Adjudicating Officer, under the Customs Act, 1969 are in the nature of quasi judicial proceedings and issuance of notice under section 180 of the Customs Act, is very important documents. The decision to issue show-cause notice is to be taken by the Collector, Adjudication, by application of independent mind and not merely signing the draft show-cause notice submitted by the investigation agency separate from the Adjudication Department and each category of officers are required to perform their respective functions/ duties under the law. The practice to submit draft show-cause notice by the Director General of Intelligence and Investigation to the Collector Adjudication is depreciated." Upon examination of the show-cause notice, it has been observed that the respondent No. 2 transmitted the show-cause notice to the appellant, draft of which was received by him from respondent No. 1 without going through its contents containing Sections of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001. This lapse on his part bears serious consequences, because Sections 33 and 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, which were referred/invoked in the show-cause notice are not relevant by virtue of the fact that Section 33 contains penal clauses akin to Section 156(1) of the Act and Section 33 speaks about imposing of default surcharge, meaning thereby that these are machinery sections. Similarly, Section 148 of the Income Tax Ordinance also contains the procedure for collection of Income Tax at import stage by the authorities referred therein. Meaning thereby that these are independent Sections and have no nexus with the charging/relevant section 11 of the Sales Tax Act, 1990 and Section 162(1) of the Income Tax Ordinance, 2001, under which show-cause notice could had to be issued by the Officer of Inland Revenue/Commissioner not by the Officer of Customs, who have to remain within the ambit of Act, they are either not empowered to invoke the Sections of either Sales Tax Act, 1990 or Income Tax Ordinance, 2001 under any circumstances. Issuance of show-cause notice on the basis of irrelevant sections under which officers of customs are not empowered. Renders it void and ab-initio and of no legal effect as held in reported judgments Asst. Collector v. Khyber Elec. Lamps 2003 PTD 1275, D.G. Khan Cement v. Collector of Customs 2005 PTD 480, Caltex v. Collector 2003 PTD 1593, Union Playing Card Company v. Collector of Customs 2002 MLD 130, Atlas Tyres v. Addl. Collector 2002 MLD 180, State Cement v. Collector PTCL 2001 CL 558, Kashmir Sugar v. Collector 1992 SCMR 1898, Rose Color v. Chairman, CBR and 2013 PTD 813 Sarwar International v. Addl. Collector of Customs.

5.While passing Order-in-Original/Appeal, it is mandated upon the Adjudicating Authority to examine the charter of show-cause notice and remain within its ambit. In case order so passed is beyond the charter of the show-cause notice, it is deems to be illegal and the Appellate Tribunal is left with no other option except to declare it suffering from legal infirmity and as such void. While perusing order passed by Respondent No. 2. I have noted with concern that he has made reference to the misdeclaration of UOM. This narration/ground is not available in the show-cause notice and confirms that the order has been passed beyond the charter of show-cause notice. Such type of the order is always declared being passed without any lawful authority. Reference is placed on reported judgments at Collector Excise and Land Customs and others v. Rehm Din reported at 1987 SCMR 1840 and Adam v. Collector of Customs, Karachi PLD 1969 Supreme Court 446, Muhammad Sadqain v. Collector of Customs (Appraisement) 2006 PTD 2742 and Messrs Exide Pakistan Ltd. v. Deputy Collector of Customs (Adjudication-III), Karachi, 2004 PTD 1449, "wherein it has been held that Order of adjudication, being ultimately based on a ground which was not mentioned in the show-cause notice is palpably illegal on the face of it".

6.Before parting with the judgment, it is of paramount importance to subscribe that where any assessment of the imported goods for levy of duty and taxes is being made with the application of valuation ruling issued by Director, Directorate General of Valuation under the provision of Section 25A of the Act, retrieved invoice whether of higher or lower value as against declared, is of no significance by virtue of the fact that the retrieved invoice is of no significance, even if it is transaction value within the meaning of Section 25(1) of the Act because "Custom value" as determined under Section 25A with the application of different sub Section of Section 25 of the Act in sequential manner. Notwithstanding, the retrieved invoice ought not have to be considered as declaration within the meaning of 2(kka) of the Act. Even otherwise, charge of misdeclaration of value has to be invoked on the basis of direct evidence (evidential invoice as ordered in paras 78 and 101 of CGO 12/2002 dated 15.06.2002 and clause (d) of S.R.O. 499(I)/2009 dated 13.06.2009 and the difference between declared value and value of evidential invoice is more than 30%. In the instant case the difference of said to be value of retrieved invoice with the declared invoice is 7.55%, whereas assessment was made at US$. 100008.10 i.e. higher by US$. 29954.10 arrived, while applying valuation ruling No. 685/2014 dated 15.09.2014, on which exchequer collected duty and taxes of Rs. 2,984,453.00 as against alleged to be collected on US$.5,415.00. In the given circumstances of the case no occasion was available either for respondent No. 1 to frame contravention report nor with the respondent No. 2 to issue show-cause notice and pass order-in-original simply for penalizing the appellant in the absence of fault or default and in derogation of the provision of Sections 2(kka), 25, 25A and 32 of the Act. Therefore, I have reached to the irresistible conclusion that the entire proceeding right from framing of contravention report till issuance of order is based on mala fide and caprice, hence of no legal effect and jurisdiction and as such ab initio void.

7.What has been discussed hereinabove, particularly the interpretation of law, legal propositions and observations made thereon and to follow the ratio decidendi observed by the Superior Courts, I hereby vacate the impugned show-cause notice, and set aside the order passed thereon, during the hierarchy of the customs being illegal, void ab-initio, appeal is accordingly allowed with no order as to cost.

8.Judgment passed and announced accordingly.

HBT/63/Tax(Trib.) Appeal allowed.