PORT QASIM AUTHORITY VS DIRECTOR GENERAL INTELLIGENCE AND INVESTIGATION-FBR, 2017 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 390 (2015)

Customs Act (IV of 1969)---

----S.194A---Pakistan Merchant Shipping Ordinance (LII of 2001), Preamble---S.R.O. 55(I)/2008, dated 11-6-2008---Exemption from sales tax and income tax---Import of dredger under Merchant Shipping Ordinance, 2001---Contention of importer was that dredger was exempted from Sales Tax and Income Tax in view of S.R.O. 55(I)/2008, dated 11-6-2008---Validity---All floating crafts, tugs dredgers, survey vessels and other specialized crafts purchased or charteredbyPakistanientityflying Pakistani flag wereexemptedfrompaymentofsalestaxvide S.R.O. 55(I)/2008, dated 11-6-2008but in the present case, subject Dredger was not registered under Merchant Shipping Ordinance, 2001, hence, was not entitled to flying Pakistan flag without registration---Appeal was dismissed, accordingly.

Aga Faquir Mohammad for Appellant.

Tariq Aziz PA, Shahid Rizvi PA and Khurram Rafique AO for Respondents.

Date of hearing: 6th May, 2015.

JUDGMENT

CH. MUHAMMAD TARIQ, CHAIRMAN.---This appeal under section 194-A of the Customs Act, 1969, has been directed against Order-in-Original No.227/2013-14, dated 31-10-2013, passed by the Collector of Customs, Adjudication-I, Karachi.

2.Brief facts of the case as per show cause notice are that it was reported by MCC-Port Qasim, Karachi that a credible information was received in the MCC-Port Qasim, Karachi to the effect that Messrs Port Qasim Authority (PQA), Karachi had imported one unit Dredger, Dong Hai Jun 7001 vide IGM No. 5003/03.01.2013, Index No. 1 and filed home consumption Goods Declaration (GD) bearing No. KPQI-HC-4906, dated 09-02-2013 under self clearance vide PCT heading 8905.1000 claiming the benefit of S.R.O. 551(I)/2008 dated 11-06-2008, for exemption from payment of sales tax and EXMITORD/2001 dated 12-08-2004 for exemption of payment of income tax. The dredger was examined and it was found that fuel, spare parts and grand father clock 06 pieces were also there in the dredger. Since, the importer did not fulfill the prerequisites of claimed SROs and the vessel was not registered with Marine Mercantile Department nor holding National Flag, the GD was processed and assessed at statutory rate of duty/taxes leviable on dredger, spare parts, fuel and clocks. The GD after assessment was handed over to Mr. Abdul Majeed Shad, the authorized representative of PQA on 11-02-2013 for payment of leviable duty/taxes. However the importer failed to pay the duty and taxes, leaving the imported dredger un-cleared in terms of Section 83 of the Customs Act, 1969.

3.The Collector Model Customs Collectorate, Port Muhammad Bin Qasim, Karachi also received a credible information that the above referred imported dredger had been removed from the port area and was being used deep in the Pakistani sea waters without fulfilment of legal formalities and payment of duty/taxes. Efforts were accordingly made to approach the importer. The Chairman, Port Qusim Authority, Karachi was also apprised regarding the position vide letter dated 14-02-2013 of the Collectorate of Customs Adjudication, Karachi, with the request to fulfil their responsibility and ensure completion of GD and effect payment of duty/taxes leviable thereon, before the imported dredger got operational. In order to verify the veracity of the information, the imported dredger was examined by the Customs into the deep sea and it was found that the dredger was fully operational, despite the fact that neither leviable duty/taxes were paid nor the dredger was put out of Customs charges. Therefore, Master of the dredger was served with a notice under Section 168 of the Customs Act, 1969 vide letter of even number dated 22-02-2013. However, importer as well as Master of the vessel failed to respond to the notices. The impugned dredger was again visited by Customs officers on 08-03-2013, when a notice was served under Section 26 of the Customs Act, 1969 to the Master of the vessel for production of Log Book and other details, in order to verify the operation of the dredger by PQA. Scrutiny of the documents so provided (daily dredging report of dredger, summary of dredging maintained by PQA) by the Master of the vessel/dredger revealed that from 07-01-2013 till 06-03-2013, the impugned dredger dredged a volume of 2,537,576 cubic meters of mixture of still and 132,992 cubic meter of solid mud, and consumed 876 metric ton of fuel during the course of its operation which clearly showed that the impugned dredger was brought into functioning without payment of duty/taxes. Instead of making payment of leviable duty/taxes, the PQA kept the GD with them. Therefore, the department was left with no other option but to proceed for contravention proceedings.

4.It was evident that Messrs Port Qasim Authority, with connivance of the Master of the dredger namely Dong Hai Jun 7001 were plying and using the dredger without payment of leviable duty/taxes with a deliberate intent to evade legitimate government revenue. Had this fact gone undetected the government exchequer would have suffered a loss to the tune of Rs. 925,742,663/- in terms of duty and taxes. This wilful act on the part of the importer and the Master of the dredger constituted an offence under provision of Sections 17, 79(b), 80 and 83 of the Customs Act, 1969 read with Section 3(1) of the Import and Export (Control), Act, 1950 further read with Section 3(3) of the Sales Tax Act, 1990 and Section 148(1) of the Income Tax Ordinance, 2001, punishable under clauses (6), (7-1), and (143) of the subsection (1) of the Section 156 of the Customs Act, 1969 read with Section 83(2) ibid and Section 33(5) of the Sales Tax Act, 1990.

5.Served with a show cause notice, the appellant deferred the position. The adjudicating officer vide Order-in-Original No.227 dated 31-10-2013, decided the matter in the following terms:--

"9. I have heard both sides at length and examined the record as well in light of submissions and arguments rendered by both sides, Messrs Port Qasim Authority, in their written reply as well as during the course of hearing, challenged the issuance of Show Cause Notice mainly on the ground that the Dredger along with tackles fixtures, Appurtenances and apparels namely Dong Hai Jun-7001 was imported by Port Qasim Authority from Messrs China Ship Building Lts (CSTC), a corporation incorporated under the laws of People's Republic of China vide contract agreement dated 11.11.2012. Besides the imported Dredger is exempt from Customs Duty, Sales Tax, Income Tax vide S.R.O. 567(I)/2006 dated 05.06.2006, S.R.O. 551(I)/2008 dated 11.06.2008 and Income Tax Ordinance, 2001 respectively. However, it is evident from the relevant GD that The Dredger Dong Hai Jun-7001 along with tackles, fixtures, Appurtenances and apparels. (HS Code 8905. 1000, 8409.9999, 2710.193l and 9105.9900) was imported by PQA against IGM No. KPQI5003 dated 03.01.2013 Index No. 1. The said Dredger was required to be cleared from the Customs by filing of proper goods declaration against payment of Rs. 1,125,976/- as Customs Duty, Rs. 568,430,057/- as Sales Tax, Rs.123,633,537/- as Additional Sales Tax and Rs. 206,001,895/- as Income Tax in cash. The GD for clearance of the subject Dredger was filed on 09.01.2013 under self clearance and the same was also physically examined on 16.01.2013 by the customs which was assessed accordingly as per following:--

i)Customs DutyRs. 1,125,976/-

ii)Sales TaxRs. 568,430,057/-

iii)Additional Sales TaxRs, 123,633,537/-

iv)Income TaxRs. 206,001,895/-

Port Qasim Authority failed to pay the due taxes within 10 days as per relevant provisions of Customs Act, 1969. Moreover, the Dredger was brought in use by PQA without completion of goods declaration/out of charged by the customs. The documentary evidence including log books, every day data and consumption of fuel was obtained from the Master of dredger which showed the following facts.

(a)Dredged volume from 07.01.2013 till 06.03.2013

(a) 2,537,576 cubic meter of mixture of slip.

(b) 132,992 cubic meter of solid mud.

(b)Fuel consumed during the period: 876 metric tons.

All the above facts clearly show that the impugned dredger was operational/working/plying without lawful authority and without payment of duty/taxes.

10. Further, the exemption of customs duty, sales tax and income tax respectively under S.R.O. 567(I)/2006 dated 05.06.2006, SRO 551(I)/2008 dated 11.06.2008 Income Tax Ordinance, 2001, was/is only available to bareboat chartered vessels/tugs/boats etc. Registered with Mercantile Marine Department under Rule 7-Bearboar Registry of the Ships Registration Rules, 2002 read with Merchant Shipping Ordinance, 2001 and clause (21) of Part-II of Second Schedule of the Income Tax Ordinance, 2001, deals with the "income" on import of ships, floating crafts, dredgers, tugs etc. Moreover, without prejudice to the above, the clause (21) of Part-II of Second Schedule of the Income Tax Ordinance, 2001, is also only deals with such ships, dredger etc. Which are flying Pakistan Flag. The language used in the said SROs is identical which reads as:--

"Ships and other floating crafts including tugs, dredgers, survey vessels and other specialized crafts purchased or bareboat chartered by a Pakistani entity and flying Pakistani flag, qualify for manifest of such exemption up to years 2020."

As such zero rated exemption of Duty/Taxes was/is not available to Messrs PQA. The exemption of Customs Duty under SRO 567(I)/2006 dated 05.06.2006, Sales Tax under S.R.O. 551(I)/2008 dated 11.06.2008 and Income Ordinance, 2001, is not available on the Dredger acquired by Port Qasim Authority from Messrs China Ship Building Lts (CSTC), it is clear that until and unless any ship/tug/boar/dredger or any floating craft get register under Rule 7-Bareboat Registry, after suspension/ cancellation of its original registration from the Out State, cannot fly dual Flags of two states at one and same time doesn't qualify for exemption of Duty/Taxes under aforesaid SROs. Messrs PQA failed to produce any documentary evidence with regard to such registrations with MMD, hence exemption of Duty/Taxes under the claimed SROs is unlawful. However, in their second reply to Show Cause Notice, a copy of provisional registration dated 26.06.2013 was furnished which clearly shows that the subject dredger was not registered at the time of filing/ assessment of GD and that it was plying and operating from day one without lawful authority as the exemptions were not available.

11. In view of foregoing discussions, it is established that Messrs PQA, Karachi, have knowingly and wilfully tried to evade duty and taxes by claiming inadmissible exemptions of duty/taxes under the aforesaid claimed SROs at the time of filing of goods declaration. I, therefore, hold that duty and taxes, demanded vide Show Cause Notice are payable along with surcharge/ default surcharge under the relevant provisions of Customs Act, 1969, Sales Tax Act, 2000 and Income Tax Ordinance, 2001, which are to be calculated at the time of payment. The demanded amount may be recovered under section 202 of the Customs Act, 1969 read with Rules made thereunder. A penalty of Rs. 30 Million (Rupees Thirty Million only is also imposed upon M/s. PQA, Karachi under Clause (14) of Section 156(1) of the Customs Act, 1969.Hence this appeal.

6.Hence this appeal on the grounds mentioned therein.

7.Learned counsel for the appellant, inter alia, contended that the impugned order is hit by limitation as the same has been passed after the prescribed time limit (sixty days) provided under section 179(3) of the Customs Act, 1969 had expired. The learned adjudicating authority failed to appreciatethesubstanceofS.R.O.567(I)/2006 dated 05-06-2006, SRO 551(I)/2008 dated 11-06-2008 and Income Tax Ordinance, 2001, while holding that exemption was available to bareboat chartered vessels/tugs/boats, etc, registered with Mercantile Marine Department (MMD) under Rule 7 bareboat Registry of the Ships Registration Rules, 2002 read with Merchant Shipping Ordinance (MSO), 2001 and clause (21) of the Part-II of Second Schedule of the Income Tax Ordinance, 2001, when the said dredger was owned by the appellant and not leased or bareboat chartered. The learned adjudicating authority further failed to appreciate that in order to fly Pakistani flag as a Pakistani ship under Section 12 of Merchant Shipping Ordinance, 2001 (hereinafter referred to as MSO, 2001), the vessel master/importer is required to complete the requisite formalities and submit the documents as required under Section 13 of the MSO, 2001 and obtain a certificate of registration of the vessel as a Pakistani vessel from the Registrar of Ships, Mercantile Marine Department, Ministry of Ports and Shipping. The learned adjudicating authority also failed to appreciate that after complying with requirements under Section 12 of the MSO, 2001, the vessel obtained certificate of registry (provisional) from MMD under section22oftheMSO,2001.Learnedcounselfurthercontendedthatthe learned adjudicating authority failed to acknowledge that under clause 21 of Part II of the Second Schedule of the Income Tax Ordinance, 2001, the appellant was not liable to pay income tax on the said dredger. The appellant has already paid presumptive/tonnage tax in lieu of income tax. The learned adjudicating authority also disregarded the fact that once a vessel is qualified to be registered as a Pakistani ship, it is deemed to be a Pakistani vessel carrying Pakistani flag, when it enters Pakistan's jurisdiction under Merchant Shipping Ordinance, 2001, and prayed that appeal be accepted and impugned order be set aside.

8.Conversely, the D/R appearing on behalf of the respondent vehemently opposed the grounds of appeal and argued in favour of the impugned order.

9.We have heard arguments of both the sides at considerable length and perused the record.

10.The appellant which is an entity established under the Port Qasim Authority Act, 1973, imported a Dredger Dong Hai Jun-7001 under Merchant Shipping Ordinance, 2001 from Zhou Shan, China, which arrived within Pakistan Customs jurisdiction on 05-01-2013. The appellant filed the GD dated 09-01-2013 for clearance thereof under PCT Heading 8905.10000 valuing US$36.95 Million claiming the benefit of SRO 551(I)/2008 dated 11-06-2008 for exemption from sales tax and from income tax under Income Tax Ordinance, 2001. Upon the examination along with the one unit used Dredger, standard accessories and spare parts, grand father clock (06 numbers) and 160 MT fuel were also found. SRO 551(I)/2008 dated 11-06-2008 allowed the exemption from sales tax and the income tax on "all floating crafts including tugs, dredgers, survey vessels and the specialized crafts purchased or bare-boat chartered by a Pakistan entity and flying the Pakistan Flag" except the ships or crafts which are required for demolishing purposes or are designed or adopted for use for recreation or pleasure purposes. Customs Authorities found that the vessel was not registered with MMD nor held Pakistan Flag and therefore, the exemption requested from the payment of sales tax and income tax was not admissible. Accordingly the GD was assessed to duty and taxes at statutory rates leviable on the Dredger and other goods found therein. The assessment was completed on 09-02-2013 and the GD was handed over to the appellant for payment of duty and taxes accordingly. Therefore, the claim of appellant for exemption from the payment of sales tax was not available under the S.R.O. 551(I)/2008. There is no denial that all floating crafts, tugs, dredgers, survey vessels and other specialized crafts purchased or chartered by a Pakistan entity flying Pakistani flag are exempted from the payment of sales tax vide S.R.O. 551(I)/2008 but in the case in hand, the subject dredger was not registered under the Merchant Shipping Ordinance, 2001; therefore, the respondent department rightly observed that the dredger was not entitled to fly Pakistani flag without such registration.

11.Learned counsel for the appellant also could not rebut the allegations of respondent side that the subject dredger consumed a large quantity of fuel and cleared millions of meters of mixture of slit and solid mud, since the time of its import while it had still not been appropriately cleared for home consumption in terms of section 83 of the Customs Act, 1969. The subject dredger was thus brought operation and work without payment of legitimate duty and tax and in brazen disregard of the statutory requirements applicable to the import and clearance of the goods.

12.The contentions raised by the learned counsel for the appellant are not supported by the law. Similarly, the law produced by the appellant is not applicable to the case in hand.

13.The upshot of the above discussion is that this Bench is of unanimous view that the impugned order does not suffer from any illegality or infirmity. No interference is called for. Hence the appeal is dismissed.

RR/82/Tax(Trib.)Appeal dismissed.