GULAB SHAH AFRIDI, MEMBER (JUDICIAL).---This appeal filed by Messrs Naiamy International, Peshawar (appellants herein) is against the Order-in-Appeals Nos.478-80 of 2009 dated 28-8- 2009 (issued on 15-10-2009) passed by the learned Collector Custom (Appeals), Peshawar, whereby he while maintaining the Order-in-Original No,7 of 2009 dated 8-5-2009, dismissed the appeal.
2. Brief facts of the case as recapitulated in the Order-in-Original No,7 of 2009 dated 8-5-2009 are that a team of Directorate-General of Inspection and Internal Audit, Islamabad vide Audit Observation No,03 dated 5-9-2006 while conducting audit of GD No,2083 dated 6-12-2005 filed by Messrs Ittehad Traders, Bajouri Gate, Peshawar through Ittehad Customs Agency, Peshawar, it was observed that in some cases Excise Duty, Sales Tax and Income Tax have been short realized during the financial year 2005-2006 due to incorrect application of assessable value without adding Customs Duty but during the budget announced in 2002, Section, 4 of the Central Excise Act, 1944 has been amended to provide to adval CED at import stage will be assessed on Customs Duty paid value. The omission regarding incorrect application of assessable value for excise duty resulted loss of Government Revenue. In this case only, the omission resulted in short realization of duty/taxes amounting to Rs,14,553. On examination of the said audit observation in consultation with System Manager PRAL, it emerged that duty/taxes A calculation module is inbuilt in One Custom System, duty/taxes calculation is done by the system on the basis of already incorporated formulae, based on input of the appraising officer with respect to PCT headings and unit values etc. The same was communicated to the internal Audit Section of MCC Peshawar for informing the Directorate of Internal Audit, Islamabad vide Letter No,Cus/DP/AO-3/Audit-2005- 06/77/2006/1821 dated 1-11-2006. Accordingly during the Member Accounts Committee meeting held at the.
Directorate of Internal Audit, Islamabad on 15-9-2007, it was decided that the matter may be referred to the Board for clarification. Accordingly, the matter was referred to Board vide Collectorate letter No,Cus/Int.Audit/meeting/2006/2009/3204 dated 10-4-2008 and reminded vide letters of even number dated 27-11-2008, 18-2-2p09 and 16-4-2009 for the said clarification, however with no response. As, such, demand-cum-show-cause notice was served upon the importer Messrs Ittehad Traders, Bajouri Gate, Peshawar and the Clearing Agent Messrs Ittehad Customs Agency, Al-Jalil Medicine Market, Peshawar, in terms of subsection (3-A) of section 32 of the Customs Act, 1969 read with sections 3 and 14 of the Federal Excise Act, 2005 and sections 3 and 36(2) of the Sales Tax Act, 1990 vide C.No,Cus/DP/AO-3/Audit-2005-06/77/2006/4876 dated 13-3-2008 for payment of the differential amount of duty/taxes amounting to Rs,14,553 indicated by the audit, as the language of section 12(3) of the Federal Excise Act, 2005 is clear and the importer was liable to pay the indicated amount. Subsequently, the matter was adjudicated upon by the Deputy Collector customs (Dry Port), Peshawar who vide his Order-in-Original No,7 of 2009 dated 13-3-2009 ordered as follows:-- "11 . I have gone through the case record, verbal and written submissions of the importer and arguments of the DR, while keeping in view the relevant provisions of the Federal Excise Act, 2005, section 12(3) of the Federal Excise Act, 2005 provides that Federal Excise duty is assessable on the value determined under section 25 of the Customs Act, 1969 including customs duties payable thereon, whereas in the case in question, CED has been charged on assessable value without adding customs duty, which has resulted in short realization of CED, Sales Tax, VAT and AIT amounting to Rs,14,553.
(12) As regards the arguments of the importer that the mistake was on part of One Customs System and Customs staff hence they are not liable to pay the short paid amount, do not hold ground. Omission/error on part of system or tax collection staff does not absolve taxpayer from any short realized amount of statutory duty/taxes. In this context, the Customs Act, 1969 and other taxation statutes provides for the post clearance audit mechanisms/organizations for pointing out such errors/ omissions, which are then recovered under their relevant provisions.
(13) It has further been noted during arguments in the case that in another audit observation of similar nature, made by the DRRA Lahore vide PDP No,10416-Cus against the importer i,e, Messrs Ittehad Traders, they pointed out amount of duty/taxes of Rs,107,691 has been paid voluntarily. The above instance amplifies the fact that the importer is convinced of the propriety of the audit observation in question.
Audit, Islamabad is correct and the charge of short payment of duty/taxes amounting to Rs,14,553 indicated by the audit stands established against the importer, in absence of any evidence to the contrary. I, therefore, order for payment of the short paid amount of duty/taxes of Rs,14,553 by the importer Messrs lttehad Traders, Bajouri Gate, Peshawar."
3. Aggrieved of the Order-in-Original, the appellant filed appeal before the Collector Customs (Appeals), Peshawar, who vide his Order-in-Appeals Nos.478-80 of 2009 dated 28-8-2009 (issued on 15-10-2009) passed by the learned Collector Custom (Appeals), Peshawar, whereby he while maintaining the Order-in-Original No,7 of 2009 dated 8-5-2009, dismissed the appeal. Hence the instant appeal on the following grounds:--
(1) That according to the department the Federal Board of Revenue has introduced a centralized computerized system known as one custom" which is operative all over the country. In the said system the applicable rates of Custom duty, Sales Tax, Regulatory duty and Federal Excise duty (if any) relevant S.R.Os., Exemptions etc. Are embedded along with the formula for calculation of duty and taxes.
(2) That according to subsection (3) of section 12 of the Federal Excise Act, 2005, provides that any goods are chargeable to duty at the import stage, duty shall be assessed and paid on the value determined in accordance with section 25 of the Customs Act, 1969 (IV of 1969), including customs duties payable thereon."
(3) That the department admitted in its reply to the honourable Federal Tax Ombudsman that the formula for calculation of "Federal Excise Duty" has been centrally fed into the system which calculates the Federal Excise Duty automatically on the Customs value and Customs staff cannot change the assessm ent manually. While on the other side the departmental representative stated that the contention of the importer that evasion of revenue took place due to system fault is not acceptable on the grounds that wherever a levy is not charged or short charged inadvertently, it is to be charged manually through additional treasury challan.
(4) That the appellant did not understand when Customs Staff cannot change the assessment manually how can this be possible that importer will change the assessment and which law provides the power to importer to change the assessment when the Customs Staff has not empowered to change and when it is possible to charge manually at the time of clearance through additional treasury challan why did the department not charge at that time.
(5) That the appellant has paid all the leviable Duty Taxes on the basis of assessment sheet issued from PRAL so no case of short assessment or miss-declaration is established against the appellant, but the same has been ignored by the respondent.
(6) That it has been brought into the notice of respondents that determination of Duty Taxes is the duty of "PRAL" and for any wrong or error done by the PRAL if any the appellant could not be held responsible to bear the consequences.
(7) That to determined Duty Taxes for Clearance of any consignment is based on the Formula which is only known to the "PRAL" to prepare the assessment sheet and the importer is bound to deposit the said assessed amount Duty Taxes accordingly, so any Audit observation regarding the said assessm ent sheet issued by the "PRAL" has got No concern with the importer on the belated stage.
(8) That for the purpose of assessm ent of Duty Taxes the "PRAL" works under the custom official to issue the assessm ent sheet for payment to the importer or his clearing Agent, so if "PRAL" works under customs this notice was required to be issued to the "PRAL" for the recovery of said amount because No wrong at the part of appellant is proved, but the same ground discussed with the respondent was also not given any weight.
(9) That the said demand cum show-cause notice is the outcome of the internal Audit but surprisingly No action against the staff of (PRAL) has been shown which otherwise means that the respondents are not interested to know that due to whose fault this alleged revenue loss has occurred. This attitude of the respondent, itself is enough to prove maladministration at the part of respondent.
(10) That if importer and Clearing Agent has got some responsibilities, then the custom authorities and "PRAL" has also got departmental responsibilities which actually has been observed by the Audit Team, but allegedly the respondents are shifting their own guilt towards the importer which is unjust and totally based on mala fide.
(11) That no violation of section 12(3) of Federal Excise Act 2005 has been proved against appellant so, no recovery as shown in the Order-In-Original could be effected from the appellant.
(12) All the sections of Customs Act, 1969, Federal Excise Act, 2005, and Sales Tax Act, 1990, applied in the show-cause notice and Order-in-Original are not applicable in this case, details are as under:---
(a) About subsection (3A) of section 32 Of Customs Act, 1969 The Audit team raised the objection of short realization of duty/taxes by conducting the audit of the documents which were provided by the importer at the time the goods were imported, therefore the department cannot issue the show-cause notice or order on the basis of subsection (3-A) of section 32 of Customs Act, 1969 because according to the provisions of subsection (3-A) any duty or charge has not been levied or has been short-levied and this is discovered as a result of an audit or examination of an importers counts or by any means other than an examination of the documents provided by the importer at the time the goods were imported.
(b) About section 14 of the Federal Excise Act, 2005 The Customs Officer cannot issue show-cause notice under subsection (1) of section 14 of the Federal Excise Act, 2005 because subsection (2) of section 14 of the Federal Excise Act, 2005 provides that the Federal Excise Officer, empowered in this behalf, shall after considering the objection of the person, serve with a notice to show-cause under subsection (1).
(c) About Section 36(2) of the Sales Tax Act, 1990 Under subsection (2) of section 36, the period of limitation for issuance of show-cause notice is restricted to three years only. Under this subsection, the grounds available for issuance of show- cause notice are inadvertence, error or some misconstruction on the part of the taxpayer.
The authority who has to issue a show-cause notice under section 36(2), will have to make out a case in the show-cause notice it self that under which provision the case falls and will also have to incorporate the grounds and reasons in his show-cause notice very clearly and explicitly so that it could be ascertained whether the show-cause notice issued falls under subsection (2) of section 36 of the Sales Tax Act. Failure on the part of authority issuing show-cause notice would render the show-cause notice invalid and illegal. Furthermore notice under subsection (2) of section 36 of the Act should speak of inadvertence, error or misconstruction and without such allegations the notices would be defective and against law. (Based on 2004 PTD 868, 2003 PTD 1797, 2003 PTD 1257 and 2005 PTD 480).
Consequently the show-cause notice as well as the Order-in-Original No, 16 of 2009 dated 11-7- 2009 passed by the Deputy Collector Customs Dry Port Peshawar, is void and where the initial order or notice is void all subsequent proceedings, order or super structure built on it are also void.
(13) That the appellant is not bound to pay the said amount of Order-in-Originals so, No action under provision of subsection (3-A) of section 32 of Custom Act 1969, 14 of Federal Excise Act, 2005 and section 36(2) of Sales Tax Act, 1990 can be taken against the appellant.
(14) That if in refund of Duty Taxes the plea of respondent is that incident has been passed on is a strong defense, then likewise two years has been passed on this incident and the appellant sold the said consignment keeping in mind all the cost and Duty Taxes applied at that time, so how can the appellant could pay any money now when the incidence passed two year back.
(15) That the department mentioned in para 1 of the Order-in-Original No 16 of 2009 that, the FED has been provisionally calculated at the import stage. This is not correct final assessment was done by the department at the time of import.
(16) The department admitted in its reply to honourable Federal Tax Ombudsman that as such escape of revenue was not due to human error but due to the system therefore, the para was recommended for settlement.
(17) As per Order-in-Original No, 7 of 2009 the Para was referred to the Internal Audit section of MCC Peshawar, for informing the Directorate of Internal Audit, Islamabad, vide letter NoCus/DP/A0- 3/Audit-2005-06/77/2006/1821 dated 1-11-2006.
(18) After 1-11-2006 no reminder was made to the concerned authorities and if the concerned authorities have not replied back, why were not any reminder sent to them.
(19) As per Order-in-Original No, 16 of 2009 the matter was referred to Federal Board of Revenue vide Collectorate letter No-Cus/Int Audit/meeting/2006-07/3204 dated 10-4-2008 and reminded vide letters of even number dated 27-11-2008, 18-2-2009 and 16-4-2009 for clarification and reply from the F.B.R. Is yet to be received.
(20) The above situation shows that the importer are left at the vagaries of the Authorities to the utter peril of their business.
(21) That according to the department the issue is being referred to Federal Board of Revenue and later on the Assistant Collector (Audit), Customs House Peshawar vide letter No,Cus/IntAudit/Meeting/2006-07/10372 dated 5-11-2008 provided a copy of Boards letter No, 7(13)-S(VAL)/2008 dated 15-10-2008 indicating that the matter has been referred to the Chief (Central Excise) for necessary action and reply from the concern authorities is yet to be received. It ,is thus proved that the previous practice is still in use by the Federal Board of Revenue.
(22) It is pertinent to mention that in case of departure from existing practice, there are provisions available in para 74 of CGO. 12 of 2002.
The Board's ruling constituted a change in the existing practice of the Custom House the Federal Board of Revenue also ruled that the change in practice will not have retrospective effect but will be applicable from the date of the ruling.
The matter was also referred to Law Division in some other case who have ruled as under:-- "Departure from the Existing Practice"...Where there is a question of departing from existing practice, whether governed by express orders of higher authority, or not, the Collector of Customs, should if the proposed departure is in the direction of an assessment more favorable to the importer, adhere to the existing practice and make a reference to the Federal Board of Revenue accepting duty meanwhile from the assessee, under protest if the assessee so requires. Where the Collector contemplates a change to a high assessment then has been the practice, he should not take action upon his view until he has obtained orders, but such orders would not have retrospective effect.
(23) Audit Observation No, 03 made by the team of Directorate General of Inspection and Internal Audit, Islamabad on 5-9-2006 whereas the department issued demand cum-Show-Cause Notice No,4876 dated 13-3-2008 (lapse of 18 months between observation and show-cause notice without showing any sufficient cause)
The Appraisement Collectorate Karachi issued Standing Order No,3 of 1995 dated 19-2-1995 for streamlining, the working of Internal Audit, and as per provisions given in the said Standing Order the original bills of entry shall be collected from the import/accounts section against cash/GD No, etc, by the staff of Audit section next day from the date of payment of taxes, and if any audit objection raised by the Audit team then the Original copy of the objection shall be placed in the file to be opened by the Deputy Superintendent (Audit Section) for further necessary action. He shall furnish a statement to PA/Superintendent (Audit) on each Saturday showing the details of demand notices issued and cases finalized during the week.
In the light of above mentioned provisions provides for the post clearance audit mechanisms/organizations; what is the status of audit/demand notice which was issued after the clearance of 27 months and who is the responsible for this lapse.
(24) The centralized computerized system known as "one custom" introduced by the Federal Board of Revenue started working from October, 2005 at Dry Port Peshawar, however, the Audit Observation made by the DRRA Lahore vide PDP No-10416-Cus against Messrs Naiamy International is not similar in nature with the case mentioned in Complaint No, 1322 of 2008 because the said consignment was cleared vide GD No, 3191 dated 10-6-2005, i,e, (prior to the promulgation of this new system).
The contention of the department that the pointed out amount of duty/taxes of Rs,107,691 has been paid voluntarily by the importer is not correct. In fact in the case of Audit Observation No-PDP No- 10416-Cus, the department issued the notice under subsection (1) of section 202 to all the Customs, Federal Excise and Sales tax authorities to "detain and sell" any goods belonging to Messrs Naiamy International, which come under the Control of respective Authorities.
If some one suffers a loss due to some pressure once, it does not mean that he is made to suffer again.
4. In rebuttal of the above grounds of appeal, the respondents-department filed their para wise comments as follows:--
(1) Correct to the extent that the Federal Board of Revenue has introduced a centralized computerized system known as one Custom which is operative all over the country. In this system, the applicable rates of Customs duty, Sales Tax, Regulatory duty and Federal Excise duty (if any) relevant S.R.Os., Exemption etc: are embedded along with the formula for calculation of duty and taxes. However, omission/error on part of the system or tax collection staff does not absolve a taxpayer from any short realized amount of statutory duty/taxes. The Customs Act, 1969 and other taxation statutes provides for the post clearance audit mechanisms/organization for pointing out such errors/omission, which are then recovered under their relevant provisions.
(2) No comments.
(3) Omission/error on part of the system or tax collection staff does not absolve a taxpayer from any short realized amount of statutory duty/taxes. The Customs Act, 1969 and other taxation statutes provides for the post clearance audit mechanisms/ organizations for pointing out such error/omissions, which are then recovered under their relevant provisions. , -
(4) Comments as per para-3 above.
(5) Incorrqct. Section 32(3-A) of the Customs Act, 1969, provides that where any duty or charge has not been levied or has been short levied or has been erroneously refunded and this is discovered as a result of an audit or examination of an importer's accounts or by any means other than an examination of the documents provided by the importer at the time the goods were imported, the person, liable to pay any amount on that account shall be served with a notice within three years of the relevant date requiring him-to show-cause why he should not pay the amount specified in the notice.
(6) Comments as per Para.-3 above.
(7) Comments as per para-3 above.
(8) Comments as per para-5 above.
(9) Comments as per para-5 above. (10, Comments as per para-5 above.
(11) Incorrect. Section 12(3) of Federal Excise Act, 2005 is self-explanatory and the importer was liable to pay the audited/ differential amount on duty paid value. Omission/error on part of the system or tax collection staff does not absolve a tax payer from any short realized amount of statutory duty/taxes. The Customs Act, 1969 and other taxation statutes provides for the post clearance audit mechanisms/organization for pointing out such errors/omission, which are then discovered under their relevant provisions and all such audit checks are basically desired to unearth revenue losses at clearance stage.
(12) (a) Incorrect. Section 32(3-A) of the Customs Act, 1969, provides that where any duty or charge has not been levied or has been short-levied or has been erroneously refunded and this is discovered as a result of an audit or examination of an importer's accounts or by any means other than an examination of the documents provided by the importer at the time the goods were imported, the person liable to pay any amount on that account shall be served with a notice within three years of the relevant date requiring him, to show cause why he should not pay the amount specified in the notice. After manifesting IGM No, and GD No,, the documents provided by the importer become Customs documents for the reason and very logic that once documents are submitted, no amendments therein can be made by importer/clearing agent unless authorized by the appropriate officer of the Customs, and audit is conducted on such documents. Even, the Superintendent/Principal Appraiser has been assigned functions of the appropriate officer vide S.R.O. 371(1)/2002, dated 15-6-2001 for the purpose of the provisions of section 32(3) of the Customs Act, 1969.
(b) Incorrect. Customs Act, is applicable to the provisions of Federal Excise Act, as provided under section 15 of the Federal Excise Act, 2005. In true essence of law, both these Acts go hand in hand at various levels to cater to legal issues.
(c) The provisions of section 32 of the Customs Act, 1969 and 36 of the Sales Tax Act are identical in nature and the object of specifying two different sets of circumstances is also identical (2003 PTD 1797).
(13) Comments as per para-5 above.
(14) Comments as per para-5 above.
(15) In correct. The observation raised by the audit team has been mentioned in para-1 of the Order-in-Original No,16 of 2009 dated 11-7-2009.
(16) Comments as per para-3 above.
(17) Correct to the extent that section 12(3) of Federal Excise Act, 2005 is self-explanatory and the importer was liable to pay the audited/differential amount. Omission/error on part of the system or tax collection staff does not absolve a taxpayer from any short realized amount of statutory duty/taxes. The Customs Act, 1969 and other taxation statutes provides for the post clearance audit mechanisms/organization for pointing out such errors/omission, which are then recovered under their relevant provisions and all such audit checks are basically desired to unearth revenue losses at clearance stage. Interestingly in another audit observation of similar nature, made by the DRRA Lahore vide PDP No,10416-Cus against the sister concern i,e,, Messrs Ittehad Traders, the pointed out amount of duty and taxes of Rs,107,691 has been realized after initiating recovery proceedings. Similarly an amount of Rs,650 pointed out in the instant audit observation against the sister concern of the importer has been paid voluntarily vide TC No, 09 dated 1 7-4-2009 .
(18) Comments as per para-1 7 above.
(19) Comments as per para-17 above.
(20) Comments as per para-1 7 above.
(21) Comments as per para-1.7 above.
(22) Comments as per para-1 7 above.
(23)Comments as per para-5 above. Moreover, the standing order issued at Karachi is not applicable in the presence of mandatory provisions of the Customs Act, which allows such audit. In fact Standing Orders are issued by the respective Collectorate keeping in view their peculiar working environment for smooth functioning of official business and are not binding upon other Collectorate and never can overrule statute.
(24)Incorrect. The short paid amount of duty and taxes amounting to Rs,107,691 indicated by audit in PDP No,10416 being of identical nature, was also adjudged against the importer vide Order-in- Original No,112 dated 27-11-2006. However, consequent upon the issuance of 0-in-0, and repeated reminders, the short paid amount was not deposited, therefore, the case was referred to the Recovery Officer on form of "demand note" on 17-4-2007, and resultantly the short paid amount of duty and taxes was deposited in pursuance of notice issued under subsection (1) of section 202 of the Customs Act, 1969. It is also relevant to add here that maximum amount of duty and taxes have been paid by other importers involved in the instant audit observation, including Messrs lttehad Traders being the sister concern of the importer.
5. During the course of arguments Mr. Amir Bilal, Proprietor/ appellant in person, gave the background of the case which has been based on an audit observation and contended that since proper G.D. Was filed by the appellant, indicating each and every thing and nothing was concealed from the department, therefore, subsequent demand for the recovery of the said amount is unjustified. He maintained that the demanded amount cannot be recovered from the consumer to whom the goods have been sold. He also referred to subsection 3(A) of section 32 of the Customs Act, 1969,; wherein under the said section he is not required to pay duty because the audit are not supposed to examine an audit document other-than the G.Ds.- The Goods Declaration filed by his client was very much clear, and according to the One Customs System, which prevails at the moment. He intimated that the case before the honourable Federal TaxOmbudsman. The Collectorate has referred the matter to the Federal Board of Revenue and issuance of the order is premature and not required. He further added that at the time of hearing before the FTO, the department. Had admitted that the fault was not on account of human mistake but due to system error. He also submitted that:--
(i) As per para 3 of Order-in-Original No, 7 of 2009 the matter was referred to F.B.R. Vide Collectorate letter No,Cus/Int- Audit/meeting/2006-07/3204 dated 10-4-2008 and reminded vide letters of, even number dated 27-11-2008, 18-2-2009 and 16-4-2009 for clarification but reply from F.B.R. Is yet to be received.
As per para 9 of Order-in-Original No,7 of 2009 the Assistant Collector (Audit), MCC Custom House, Peshawar vide letter No-C us /Int- Audit/ Meeting/2006- 07/10372 dated 5-11-2008 provided a copy of Board's Letter No 7(13)-S(Val)/2008 dated 15-10-2008 indicating that the matter has been referred to the Chief (Central Excise) for necessary action but reply from Chief (Central Excise) is yet to be received. What we find amazing is the fact that even though the F.B.R. Has not decided yet whether to take money from the importer or else, even though the Chief (Central Excise) has not decided yet whether to take money from the importer or else, the dry port staff has decided that importer is responsible for this short-levied amount of F.E.D. However the department admitted in para 10 of Order-in-Original No, of 2009 clarification of the F.B.R. Was of utmost importance is this case.
(ii) The department admitted in its reply to Federal Tax Ombudsman that the escape of Revenue was not due to human error but div to the system. The para was therefore, recommended for settlement. However, in compliance with the Member Accounts Committee (MAC) meeting held at Islamabad on 15-9-2007, the issue is being referred to F.B.R. For consideration. In the meanwhile demand notices were issued to the importer for seeking payment of the pointed out short paid amount of duty and taxes.
In the light of above it is clear that the department is not accepting that the importer is also falling under the category of human.
(iii) That the Collector (Appeals) Peshawar has mentioned in the hearing notice dated 8-8-2008 (placed at page 36 as annex I) that in the instant case date of hearings were fixed for 25-6-2009, 11-7-2009, 17-7-2009 and 6-8-2009 but nobody appeared for hearing on behalf of the department while on the other side the. Collector (Appeals) Peshawar mentioned in paras 5 and 6 of the Order- in-Appeals Nos. 478-80 that hearing in this case held on 25-6-2009, 11-7-2009, 17-7-2009 and 6-8- 2009. Mr. Aamir Bilal (Appellant) appeared for hearing and Appraiser also attended the hearing on behalf of the importer.
This attitude of the Collector (Appeals) Peshawar itself is enough to prove a male administration at their part.
6. On the other side, Mr. Naseer Khan, Deputy Superintendent did not agree with the contention of the learned Advocate with reference to subsection 3(A) of section 32 of the Customs Act, 1969 and contended that here the word "or" has been issued and therefore, audit conducted on the customs documents is applicable to all such cases. Mr. Fazlur Rehman, Deputy Superintendent elaborated the position further and contended that in fact the provision of subsection 3(A) of section 32 of the Customs Act, 1969 or section 3 have not been applied in this case but because the error was pointed out by the audit, therefore, the provisions of subsection 3(A) of section 32 of the Customs Act, 1969 have been incorporated. He also referred to the Board's letter No,3(2)TAR-1/10 dated 16th April, 2010, wherein the Board has clarified the matter. Reacting to this stance of the department, Mr. Durrani, Advocate/ counsel for the appellant contended that the Board's said clarification pertains to section 12(4) of the Federal Excise Act, 2005, while his case is under the provisions of section 12(3) of the Federal Excise Act, 2005 and as such the Board's said letter does not pertain to this case. He prayed for dismissal of the appeal and maintaining the impugned orders.
7. In reply of the comments of the respondents-department, the appellant also filed his rejoinder to the following effect--
(1) Incorrect. Cardinal principle of law is to be considered for the recovery of short levied duties because all are equal before aw whether Citizen or State (1992 SCMR 1898).
Importer will be responsible if any inadvertence. Error, violation or some misconstruction on the part of taxpayer otherwise it is very important to know that due to whose fault this alleged revenue loss has 'occurred.- According to subsection (3) of section 12 of the Federal Excise Act, 2005, provides that "any goods are chargeable to duty at the import stage, duty shall be assessed and paid on the value determined in accordance with section 25 of the Customs Act 1969 (IV of 1969), including customs duties payable thereon."
The above mentioned underlined (sic) words needs consideration that who is the assessing authority at the import stage, because whatever amount assessed by the appropriate 0.Fficer at the import stage the importer has already deposited.
(2) Comments as per para-1 above
(3) Incorrect. Grounds for recovery of short levied ants unit of duty/taxes if inadvertence, error or some misconstruction on the part of the taxpayer. (Based on 2004 PTD 868, 2003 PTD 1797, 2003 PTD 1257 and 2005 PTD 480).
(4) Comments as per para-3 above
(5) Incorrect. The Audit team raised the objection of short realization of duty/taxes by conducting the audit of the documents which were provided by the importer at the time the goods were imported, therefore the department cannot issue the show-cause notice or order on the basis of subsection (3-A) of section 32 of Customs Act, 1969 because according to the provisions of subsection (3-A) any duty or charge has not been levied or has been short-levied and this is discovered as a result of an audit or examination of an importers counts or by any means other than an examination of the documents provided by the importer at the time the goods were imported.
(6) Comments as per para-3 above.
(7) Comments as per para-3 above.
(8) Comments as per para-5 above.
(9) Comments as per para-5 'above.
(10) Comments as per para-5 above.
(11) Comments as per pare-1 above.
(12) (a) Comments as per para-5 above.
(12). (b)Incorrect. As provided under section 15 of the Federal Excise Act, Customs Act, is applicable only to the provisions of sections 3 and 8 of Federal Excise Act, 2005. However the department issued the show-cause notice under section 14 of the Federal Excise Act, (12). (c) Correct to the extent that according to 2003 PTD 1 797 grounds for recovery of short-levied amount of duty/taxes if inadvertence, error or some misconstruction on the part of the taxpayer.
(13) Comments as per para-5 above.
(14) Comments as per para-5 above.
(15) Incorrect. The department mentioned in Para 1 of the Order-In-Original No, 16 of 2009 that, the FED has been provisionally calculated at the import stage.
(16) Comments as per para-1 above
(17) Comments as per para-1 above.
(18) Comments as per para-1 above.
(19) Comments as per para-1 above.
(20) Comments as per para-1 above.
(21) Comments as per para-1 above.
(22) Comments as .Per para-1 above.
(23) Comments as, per para-.1 above.
(24) Incorrect. The centralized computerized system known as "one custom" introduced by the Federal Board of Revenue started working from October, 2005 at Dry Port Peshawar, however, the Audit Observation made by the DRRA Lahore vide PDP No-10416-Cus against Messrs Naiamy International is not similar in nature with the case mentioned in Complaint No, 1322 of 2008 because the said consignment was cleared vide GD No,3191 dated 10-6-2005, i,e, (prior to the promulgation of this new system).
The contention of the department that the pointed out amount of duty/taxes of Rs,107,691 has been paid voluntarily by the importer is not correct. In fact in 'the case of Audit Observation No-PDP No- 10416-Cus, the department issued the notice under subsection (1) of section 202 to all the Customs, Federal Excise and Sales Tax Authorities to "detain and sell" any goods belonging to Messrs Naiamy International, which come under the control of respective Authorities.
If someone suffers a loss due to some pressure once, it does not mean that he is made to suffer again.
PRAYER:- It is therefore, humbly prayed that on acceptance of this application the alleged demand cum- show-cause notices and Order-in-Original Nos. 7 and 16 of 2009 may be considered as illegal and serious action be taken against Respondent for causing male administration at their part. Any other relief not specifically asked for may also been allowed.
In the light of all the above mentioned submissions it is requested by acceptance of this appeal the Order-in-Appeals Nos.478-80 of 2009 dated 15-10-2009 may please be set aside.
8. The appellant also submitted as follows:-- That besides the issues, which are already before this Hon'able Court in the aforementioned Appeal, following legal issues are placed before this Hon'able Court for decision.
That the department mentioned in its Letter No, C. No, Cus/lAudit Meeting/2006-7/3481 dated 16-4- 2009 'addressed to Secretary Federal Excise, F.B.R., that this short payment was caused due to a loophole/imperfection in "one custom", but on the other hand the department decided the case against appellant on the grounds that omission/error on part of the system or tax collection staff does not absolve a tax payer from any short realized amount of duty/taxes.
That this act in itself violated the principles of natural justice because according to the natural justice no innocent person should be unjustly punished.
That while interpreting the provisions of section 32 the point which the Adjudicating Authority failed to notice that the Cardinal Principle of Law is to be considered for the recovery of short-levied duties and the Cardinal Principle of Law is "That all are equal before Law whether Citizen or State".
That the decision of the honorable Supreme Court of Pakistan reported in Federation of Pakistan through Secretary, Finance, Islamabad v. Messrs Ibrahim Textile Mills Ltd. 1992 SCM R 1898 for the same proposition "Due consideration was given as to whether the respondents should not pay the short-levied duty and whether the State should suffer in public finance. But the cardinal principle of. Law is that all are equal before law, whether citizen or State". Similarly the Adjudicating Authority was also not given any weight to the decision of Lahore High Court reported in Messrs DG Khan Cement v. The Collector, of Customs, Multan 2003 PTD 1797, for the same proposition "subsection
(3) of section 32 relates to inadvertence, error or miss-construction on the part of the importer".
That as per para. 9 of Order-in-Original No,7 of 2009 the Assistant Collector {Audit), MCC Custom House, Peshawar provided a copy of Board's Letter No,7(13)-s(Val)/2008 dated 15-10-2008 indicating that the matter has been referred to the. Chief (Central Excise). Meaning thereby it was clearly a Federal Excise Case.
That the Deputy Collector,- Customs Dry port Peshawar who issued the show-cause notice under section 14 of the Federal Excise Act, 2005, and passed the order-in-original had no jurisdiction as it is the sole domain of the Federal Excise Department as per section 14 of the Federal Excise Act, 2005. It would be appropriate to analyze the scheme and mechanism of the issuance of show- cause notice as provided in the Act, therefore, for ease of reference the provisions of subsection (2) of section 14 of F. E Act, 2005, are reproduced below:-- "The Federal Excise Officer, empowered in this behalf shall after considering the objection of the person serve with a notice to show-cause under subsection (1)".
That the honourable Supreme Court of Pakistan had held in its judgment (PLD 1971, Supreme Court 124) "it is an elementary principle that if a mandatory condition for the exercise of jurisdiction by a Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revisions equally suffers from illegality and are without jurisdiction. The learned Advocate-General fully supported this view and asked for dismissal of the appeal. In this view the appeal is dismissed without any order as to casts".
Similar views were taken by the learned Division Bench of Hon'ble High Court of Sindh at Karachi in the case of Messrs Kamran Industries v. Collector Customs (Exports) Karachi and 4 others (PLD 1996 Kar. 68). Since, the initial action on the part of Import Processing Officer and staff of formulating Contravention report, in cases where the assessment had been made by them, was without jurisdiction, thus the subsequent proceedings would be void and illegal.
That the Show-Cause Notice as well as Order-in-Original passed against the importer on the grounds that section 12(3) of F.E Act, 2005, provides that ad value FED at import stage will be assessed on customs duty paid value, but contrary to this the FED was charged on the import value.
That on the date of hearing I.E. 25-10-2010 the departmental representative provided a copy of Letter No, C. No, Cus-DP/A0- 03/Intema1/205-06/77/06/111/2506 dated 20-10-2010, wherein the Adjudicating Authority had held that "It is pertinent to mention here that the Federal Board of Revenue has issued instruction on the said issue vide C.No,3(2) TAR-1/10 dated 16-4-2010". The contents of the letter No, referred above are reproduced below:-- "The rate of FED applicable to cosme tics imported in retail packing is 10% of retail price fixed by the manufacturer under section 12(4) of F. E Act, 2005"
That when the difference is raised between the opinion of the Adjudicating Authority and the F.B.R.
At this belated stage regarding the sections of act, consequently, the issue raised in this case is whether or not the proceedings initiated by issuance of the show-cause notice as well as order-in- original against the appellant do fall within the framework of law.
That for the foregoing reasons, it is held that the Customs staff still has not confirmed under, which, subsection, the FED is chargeable, thus it is proved that the show-cause notice as well as Order-in- Original No, 7 of 2009 dated 8-5-2009, passed against the importer being contradictory and vague in itself was not sustainable in law.
That the honourable Appellate Tribunal, Customs, Karachi Bench III, Karachi had held that the goods once assessed by the Assessing Officer under section 80 and given out of his charge, could not be reassessed by any other authority including the Directorate General of Intelligence and Investigation (Customs and Excise). 2005 PTD (Trib.) 135.
9. I have heard both the parties and have gone through the record of the case with their assistance. Perusal of the record would reveal that from the day first, the respondents-department lingering on the matter and kept this Tribunal waiting for the reply regarding clarification of the issue in question from the F.B.R. But every time a cyclostyle reply has been submitted by them, stating that the matter is under consideration by the F.B.R. And its reply is awaited but still with no progress. This act on the part of the respondents-department shows that the appellant is being punished for a fault, not of his own, as is evident from the letter of the Collector Customs, M.C.C., Peshawar addressed to one Mr. Muhammad Sadiq, Secretary (Sales Tax and Federal Excise), Federal Board of Revenue, Islamabad, which is reproduced hereunder:-- Subject:-MINUTES OF MEMBER'S ACCOUNTS COMMITTEE (MAC) MEETING HELD ON 15TH SEPTEMBER, 2007 OF THE AUDIT REPORT/OBSERVATION ISSUED DURING THE YEAR 2005-06 AND 2006-2007 Please refer to F.B.R. (Inspection and Audit Wing), Islamabad's letter bearing C.No,1(19)1A/08/endox # 2009/29511-R dated 24-2-2009 and this Collect rate's letter bearing C. No, Cus. /Int. Audit meeting/2006-2007/1555 dated 18th February, 2009 on the above subject (copies enclosed for ready reference).
(2) The ruling requested for, may please be expedited so that the short payment of Federal Excise Duty detected by Directorate of Internal Audit vide Para 3.3 of Audit Report for 2006-2007 can be regularized. This short payment was caused due to a loophole/imperfection in "one customs" and was not attributable to inefficiency or mala fide of the staff".
Contents of the aforementioned letter clearly indicates that it was a fault of the "one custom system", responsibility of which definitely lies upon the respondents-department as the same was under the use and control of them, therefore, they were required to be vigilant for operating of the said system, as such, the appellant could not be held liable for the alleged short payment of government dues (if any).
10. Further, there is also contradiction between the stance of adjudicating authorities and the F.B.R.
Regarding the recorded sections of law upon which the whole structures of show-cause notice are standing, because on the one hand the show-cause notice as well as Order-in-Original is passed against the importer on the grounds that section 12(3) of the Federal Excise Act, 2005 provides that ad val. FED at import stage will be assessed on customs duty paid value but on the other hand i,e,, on the date of hearing on 25-10-2010 a copy of letter C. No, Cus-DP/A0/03/Interna1/205- 06/77/06/111/2506 dated 20-10-2010 is produced before this Tribunal wherein the Adjudicating Authority had held that "it is pertinent to mention here that the Federal Board of Revenue has issued instructions on the said issue vide C.No,3(2)TAR1/10 dated 16-4-2010". The contents of the letter referred above are reproduced below for the sack of convenience:- "The rate of FED applicable to cosmetics imported in retail packing is 10% of retail price fixed by the manufacture under section 12(4) of the Federal Excise Act, 2005".
Here a question arises that as to whether the Customs authorities are of the firm view that all the proceedings took place in this case are according to law or otherwise? The answer will definitely be in negative for the reason that the respondents-department has not yet confirmed that under which subsection of the Federal Excise Duty is chargeable, which otherwise convert the show- cause notice into a futile exercise and waste of time, thus it is proved that the show-cause notice as well as Order-in-Original No,7 of 2009 dated 8-5-2009, passed against the importer being contradictory and vague in itself was not sustainable under law, as the law requires credible grounds for impregnating a stance forwarded with a purpose to implement certain sections of law on the basis of equal treatment emanating from the natural course of justice which the cardinal principle of law is to be considered for the recovery of short levied duties and the Cardinal Principal of law is "that all are equal before law whether citizen or State" as held by the honourable Supreme Court of Pakistan reported as 1992 SCM R 1898.
11. In light of the above facts and circumstances, it is proved that the appellant had no intention to deprive the State from its legitimate revenue (involved in the instant case to the tune of Rs,1,33,102), hence is not liable for any act of error, misconstruction, inadvertence or omission, which took place due to the loophole and imperfection of the "one customs system". As such, while accepting the appeal, I am of the view that the Order-in-Original as well as Order-in-Appeal do not stand the thrust of actual and prime course of justice hence both of which are set aside. The appeal stands disposed of accordingly.
12. This judgment shall also apply muatis mutandis to the following appeals, being identical in nature and involving the similar points of law and facts:-- S.No . Appeal No. Appellant(s) Impugned ONO No, and dateImpugned ONA No, and DateShort Assessed amount
1. Cus.
396/PB/2009Messrs Naiamy Intl.
Peshawar478-80 of 2009 dated 28-8-200916 of 2009 dated 11-7- 2009Rs,2,32,392
2. Cus.
398/PB/2009Messrs Ittehad Traders-do- 7 of 2009 dated 8-5- 2009Rs,14,553