MOHAMMAD ATHER SAEED, J. - These Reference Applications have been filed against the order of the Tribunal dated 18.5.2009 in Customs Appeal No. K- 304/2006 whereby the appeal filed by the present respondent was allowed and it was held that baby diapers imported by the respondent fell under HS Code 4818.4010.
2. The following questions said to have arisen from the order of the Tribunal have been proposed for the opinion of this Court:-
1. Whether under the circumstances of the case the learned Member (Judicial) has passed the order correctly as per Customs Tariff where the Diapers are chargeable to customs duty as under:-
(i) Diapers of patients PCT Heading 4848.4010 @ 10% customs duty.
(ii) Other Diapers, 4818.4090 @ 25% customs duty.
2. Whether in the presence of consistence practice, the Tribunal has not erred in law by relying and equated the respondent's case at par with the case-law 2008 PTD 1475?
3. Whether in the presence of bulk of correct assessments/clearances the Tribunal erred law by accepting and treating few isolated cases of wrong assessment as an established practice?
4. Whether in the presence of bulk of clearances/assessment of Baby diapers under PCT Heading 4818.4090 the issuance of demand notices for the short realized amount can be terms as discrimination?
5. Whether the Tribunal erred in law by not considering the proposition of law that the self- assessm ent of imported Boby Diapers under Section 79(1 )(b) of the Customs Act, 1969, at 10% customs duty instead of 25% customs duty is actually an attempt of evasion under Pakistan Customs Computerized System (PaCCS) within the meaning of Section 32 of the Customs Act, 1969?
6. Whether the Member (Judicial) of Tribunal was right to decide a purely technical issue/case without the association of Members (Technical)?
7. Whether the findings of the Tribunal are not perverse fo/ non-reading and/or misreading the record available before the Tribunal?
3. On 02.11.2010, after hearing the learned counsel at some length, we had put both the counsel on notice that since a short point is involved we will dispose of the case at Katcha Peshi Stage and on 12th November, 2010, after hearing the learned counsel thoroughly we had passed the following short order:- "Both the learned counsel have concluded their arguments. We are of the opinion that for the purposes of passing a just and fair order the questions proposed have to be refrained by this Court and therefore we reframe the questions as under:-
1. Whether in the facts and circumstances of the case the learned Tribunal was justified in holding that baby diapers are classifiable under PCT Heading 4616.4010 and not under PCT Heading 4816.4090?
2. Whether in the facts and circumstances of the case penalty could be levied by the order in original for mis-declaring the goods under PCT Headings 4818 4010?
For reasons to follow we answer the question No. 1 in negative in favour of the applicant and against the respondent and we answer question No. 2 in negative in favour of the respondent and against the appellant.
4. By this order we are highlighting the reasons in support of passing the above short order.
5. Brief facts of the case are that the present respondent had imported baby .Diapers and declared the same under HS Code 4818.4010 whereas the present applicants held that the said diapers fall under HS Code 4818.4090 and accordingly, after issuance of show-cause notice, by the order in original dated 03.05.2006 directed the assessing officer to reassess the goods declaration on correct HS Code that is 4818.4090 and also levied a personal penalty of Rs. 100,000.00 in all these three cases.
6. Being aggrieved by the above order in original the present respondent filed an appeal before the Collector Appeals who vide order in appeal was 224 to 226 of 2006, dated 17.07.2006 rejected the appeals.
7. Being aggrieved by the above order the respondents filed appeals before the Customs, Excise & Sales Tax Appellate Tribunal, Bench-ll, Karachi which were allowed by the impugned order. Hence this reference application.
8. We have heard Mr. Ghulam Hyder Shaikh the learned counsel for the applicant and Mr. Junaid Ghaffar the learned counsel for the respondents.
9. The learned counsel for the respondent had taken up a preliminary objection about the maintainability of these Reference Applications. He submitted that under Section. 196 of the Customs Act the memo, has to be signed by the Collector or by any officer of the Customs not below the rank of Additional Collector who has been authorized by the Collectorate in writing. He submitted that no authority from the Collector in writing to file the memo, of appeal has been filed.
He then referred to the affidavit filed with the memo. Of reference application wherein the Additional Collector has not stated that he was filing the memo, under the authority from the Collector. The learned counsel relied on a judgment of the Honourable Supreme Court of Pakistan in the case of DIRECTOR, DIRECTORATE-GENERAL OF INTELLIGENCE AND INVESTIGATION and others V.
Messrs AL-FAIZ INDUSTRIES (PVT.) LIMITED (2006 SCM R 129) wherein the Honourable Supreme Court had held that if all the formalities required for filing appeal/reference applications were not complied with strictly, the appeal/reference application is liable to be dismissed as not maintainable.
10. Mr. Ghulam Hyder Shaikh the learned counsel for the applicant was put to notice to satisfy Court that necessary permission in writing had been acquired from the relevant Collector authorizing the Additional Collector to file the appeal and to satisfy the Court that the requirements prescribed under Section 196 have been fulfilled. Mr. Ghulam Hyder Shaikh on the date of hearing produced the relevant file a perusal of which has revealed that necessary (permission prescribed under Section 196 had been accorded by the Collector and the formalities have been completed. After being satisfied we regret that we cannot agree with the contention of the learned counsel for the respondent that the authority in writing has to be filed alongwith memo, of reference application because no such condition has been prescribed in Section 196 and one the Court, is satisfied that the necessary permission was accorded in accordance with the provisions of Section 196 then the reference application cannot be declared non- maintainable.
11. For the above reasons the arguments of the learned counsel for the respondent on the question of maintainability, are rejected.
12. Coming to the merits of the case, Mr. Ghulam Hyder Shaikh the leamed counsel for the applicant drew our attention to PCT 'Headings 4818.4010 and 4818.4090 in respect of which the present controversy pertains, It will be relevant to reproduce these two PCT Headings, which read thus: HS Code Description UnitCustoms dutySales ImportTax on supply 4818.4010 Diapers for patientsKG 10% ad val. 15% 15% 4818.4090Others KG 25% ad val.15% 15% The learned counsel submitted that the learned Tribunal instead of examining there two PCT Headings and interpreting as to under which heading the goods imported ' by the petitioner fails, was persuaded by the contention of the learned counsel for the present respondents that the department had been continuously clearing identical goods under PCT heading 4818.4010 and Id that the departmental practice whether right or wrong if followed continuously acquires the force of law and cannot be discarded without cogent reasons and allowed the appeal and set aside the orders of the forums below. He submitted that first of all it was not a continuous departmental practice but ^at the, same time conceded that manually the Appraisement Collectorate had been clearing the goods under PCT Heading 4818.4010. He further submitted that departmental practice if not in accordance with law will not be a bar against taking action in accordance with law. In this connection he relied on a judgment of this Court- in the case of Messrs P&G INTERNATIONAL, LAHORE v. ASSISTANT COLLECTOR OF CUSTOMS, (APPRAISEMENT GR-II), Karachi and 3 others (2010 PTD W0) wherein this Court had held that departmental practice cannot override a provision of law and if any practice is being carried on in contravention of law and rule such practice has to be stopped.
He also relied on another judgment of this Court in the case of Abdul Mateen v. Commissioner of Income Tax. He therefore prayed that the questions reframed by this Court may be answered in his favour.
13. Mr. Junaid Ghaffar the learned counsel for the respondent strongly opposed the arguments of the learned counsel and submitted that the continuous departmental practice has been that baby diapers were being cleared under PCT Heading 4018.4010. He submitted that this PCT Heading has been now substituted and the present Heading under which the subject goods are now being classified, are as under:- 4818.4010Diapers for adults (patients)KG10% 100% 15% 10% 7.5%16% 2% Free4% 3%1%5 4 610 7412 of weight exceeding 25 kg.6.70% 4818.4020Diapers for infants and babiesKG25% 25% 20%100% 16% 2%4% 3%1% He has argued that the, clarification has been issued and amendment has been made because there must have been some anomaly in the old PCT Headings. He conceded that under the new PCT Heading it is clear that diapers for infants and babies are classified under PCT Heading 4818.4020 whereas the diapers for adults (patients) are classified under PCT Heading 4818.3*010. He further argued that this PCT Heading cannot be applied retrospectively. The learned counsel went on to argue that the Tribunal has rightly held that departmental practice acquires force of law and cannot be lightly departed from, In this connection he relied on the following judgments:-
(1) Messrs RADAKA CORPORATION and others V. COLLECTOR OF CUSTOMS and another (1989 SCMR353) (2) SUPER INDUSTRIES (PVT) LTD. v. CENTRAL BOARD of REVENUE and others (2002 PTD 955)
(3) Messrs COLGATE PALMOLIVE (PAKISTAN) LTD. v. FEDERATION OF PAKISTAN and others (2004 PTD 2516)
(4) FILTERS PAKISTAN (PRIVATE) LIMITED V. FEDERAL BOARD OF REVENUE (2010 PTD 2036).
14. The alternate argument of the learned counsel for the respondent was that vide the three impugned orders a personal penalty of "Rs. 1,00,000.00 has been levied on him. He submitted that even if this Court is of the opinion that the goods imported by the applicant fail under PCT heading 4818.4090 and not under PCT Heading 4818.4010 as declared by him and accepted by the Tribunal, penalty still cannot be levied on him because he had been making the declaration in good faith on the basis of departmental interpretation in his case and it is settled law that where such exemption/concession is claimed in good faith then there is no mens rea involved and penalty cannot be levied. He therefore prayed that the order of the Tribunal being unexceptionable may be upheld, by this Court and the reference application may be dismissed.
15. We have examined the reference applications in the light of the arguments of the learned counsel and have carefully perused the records of the case and judgments relied on by the learned counsel.
16. A perusal of the relevant PCT Heading reveals that the diaper for patients fall( within the PCT Heading 4818.4010 whereas other diapers fall under the PCT Heading 4818.4090. Lt is an admitted fact that the goods imported by the respondent are baby diapers and nowhere it' has been contended that these are special baby diapers to be used only by sick babies but it was admitted before us also that the diapers are for the use of all babies including healthy babies and sick babies. We are unable to understand why in the first place the custom department allowed the clearance of the goods under PCT Heading 4818.4010 as the goods imported have not then imported for the use of patients but are for general use of babies and therefore a simple reading of the two PCT Headings leads to the conclusion that the baby diapers will fall under PCT Heading 4818.4090 and by seeking to classify these diapers under the above PCT Heading the appellants have not violated any law but have just not followed past departmental practice which was being followed in violation of the principles of interpretation. A review of the findings given by the learned Tribunal leads to the conclusion that the learned Tribunal has failed to even examine the PCT Headings and their effect and should at least have given his view on the PCT Heading under which the goods will fall, but he outright rejected the present applicant's view-point only on the basis of past practice. While doing so the learned Tribunal had discussed the issue of departmental practice and consistency in7 5 4 12 assessm ent and assumed that departing from such practice and allowing the facility to some one and denying it to another is blatant discrimination on the part of the
16. On the point of past practice, we have perused the judgments relied on by the learned counsel for the respondent, In the case of Radaka Corporation quoted supra it was held that for the purposes of levy of import duties and export duties as per the schedule to the Customs scrap and waste of iron, and steel imported for re-rolling purposes have always been classified under the general classification of waste and scrap metal of iron and steel both for the purposes of Import and Export Control Act, 1950 and the Customs Act- and this assertion was supported by longstanding practice of the Customs Department which had always classified iron and. Steel scrap imported for re-rolling, purposes under the heading "waste and scrap metal of iron and steel", but this 'longstanding practice was suddenly reversed by the Central Board of Revenue vide Circular Letter No. 5(73)-SS, (RAR)-ll/68, dated 21st March, 1969 wherein it was ruled that the articles imported for re-rolling mentioned in the notification of the Department of : Investment, Promotion and Supplies (Iron and Steel control) Karachi, dated 3rd June, 1968, which are not remitted or forged as a whole for the recovery of the metal will not be classifiable under the heading 73.03 of the PCT but will be classified separately in their appropriate headings. The Hon'ble Supreme Court after a very thorough exercise came to the conclusion that the interpretation having been constantly followed by the department and it having been a longstanding practice had almost acquired the force of law and the directive of the CBR in its Circular had the effect of making the purpose for. Which the goods were imported, rather than the nature of the goods as the basis for classification for the goods. This was not the practice when the goods were imported and therefore the Supreme Court held that no sufficient ground existed for not treating the goods within the heading 73.03 as per the past practice. The Honourable Supreme Court held that the past departmental practice cannot be rejected lightly especially as there was no legal basis supporting the directives of the CBR; this was done after examining the process of obtaining waste and scrap of iron and steel and holding that resort to this process can also be utilized for recovery of the metal, It is apparent that the past practice was followed not only it was a past departmental practice but was also more legal than the circular of the CBR on the basis of which the past practice was rejected.
17. In the case of Super Industries (Pvt.) Ltd. Quoted, supra this Court held that the revenue cannot be allowed to shift versions in respect of the same product with mere change in the law pertaining to the taxability of a product. This case is also distinguishable as in the present case no change in law occurred and only the correct interpretation of the relevant heading was taken into consideration.
18. In the case of Colgate Palmolive Ltd. Quoted supra the Court after being satisfied that in the past the goods imported by the petitioner were being correctly classified under relevant hearting and the department had acted illegally and with mala fide intention in assessing the imported consignment under a new heading quashed the impugned demand notice and remanded the case back to respondent customs department to levy custom duty and other taxes under the heading under which the duties were toeing provisionally levied. This case is also distinguishable.
19. In the case of Filters Pakistan (Pvt.) Ltd. Quoted supra this Court, after arriving on the conclusion that the PCT Heading under which the items imported by the petitioner were being assessed provisionally was the correct PCT heading and the petitioner could not be deprived of the benefit of notification merely on imagining or reading words which were not written therein, held that the petitioners were entitled to the benefit of the notification which had been given to them provisionally.
20. As is apparent from the examination of these judgments, in all the above cases relied on by one learned counsel for the respondent, the Court had directed that the past practice should be continued after being satisfied that the past practice was in accordance with law and the departure from such practice was not legally valid and past practice could not be sustained-as it could not qualify on merits as the correct interpretation. The cases are all distinguishable because in the present case we are of the opinion that the departmental practice was completely in violation of the law as there cannot be two views that baby diapers would not fall within the PCT Heading 4818.4010 the description of which was diapers for patients but being baby diapers fell in the description of "other" and had to be assessed under PCT Heading 4818.4090.
21. We have also examined the judgment relied on by the learned counsel for the applicant, In the case of Messrs P&G International quoted supra, this Court has specifically held that practice cannot override a provision of law and if any practice has been carried on in contravention of any law/rules such practice has to be stopped.
22. In the case of Abdul Mateen quoted supra this Court had observed that the concept of departmental practice assuming sanction of a law is no longer good law.
23. We have also examined the judgment of the Honourable Supreme Court in the case of THE ENGINEER- IN-CHIEF BRANCH and another v. Jalaluddin (PLD 1992 SC 207) wherein the Hon'ble Court went so far as to hold that if the order passed is illegal then perpetual rights cannot be gained on the basis of an illegal order such a case even the principle of locus Poenitentiae would not apply.
24. We are. Therefore of the considered opinion that if there is past departmental practice which is being carried on a wrong interpretation and in violation of law then such a practice has to be stooped and the interpretation in accordance with law has to be given effect to. Since we have already held the the baby diapers imported by the applicants have to be classified under PCT Heading 4818.4090 and had wrongly been classified under PCT Heading 4818.4010, therefore, we are of the considered opinion that the order of the Tribunal holding that the baby diapers are classifiable under 4818.4010 in accordance with the past practice followed by the department cannot be sustained. For these reasons we had answered the reframed Question No. 1 in negative against the respondents and in favour of the applicant.
25. We now come to the reframed question No?
2. An examination of the impugned order in original reveals that a penalty of Rs. 100,000.00 in each or the three orders in originals had been levied for alleged mis-declaration. Since it is an admitted fact that the department itself had been classifying the baby diapers imported by the petitioners under PCT Heading 4818.4010', therefore the declaration made by the petitioner was on the basis of the previous classification and cannot be termed to have been made in bad faith or with the intention of evading duties, It is settled law that in cases where a wrong interpretation of a Section is 'made and tax or duty 'has been short paid due to misconstruction or misinterpretation of the relevant law in good faith such shortfall cannot be termed as misdeclaration and will therefore not be liable to levy of penalty. Although 1 this question had not been agitated before us because it did not arise from the order of the Tribunal since the Tribunal had allowed the appeal and there was no occasion to argue that point, now that we are not upholding the order of the Tribunal the respondents will be doubly jeopardized.
We are - therefore of the considered view that in the interest of justice we can adjudicate on this point and hold that the respondents are not liable to the penalty levied.
26. The above are the reasons for which we answered reframed question No., 2 in favour of the respondent and against the appellant.
27. All the above three reference applications are disposed of in the above manner.
28. A copy of this order under the signature of the Registrar and seal of this Court be remitted to the Income Tax Appellate Tribunal for passing of orders in conformity with this order.