HUMAYUN KHAN SIKANDARI, MEMBER (TECHNICAL):-- This appeal has been field by Messrs Shahzad Ghee Mills Ltd., Gadoon Amazai (hereinafter called as the appellant) against the Order- in-Appeal No.499 of 2007, dated 15-8-2007, passed by the Collector of Customs, Sales Tax and Federal Excise (Appeals), Peshawar.
2. Precisely, the stated facts of the case as recapitulated from the available case record are that on 14-11-2006, the Customs Staff visited the premises of the appellant (holder of Manufacturing Bond Licence No.2 of 2000), and examined the record maintained in respect of the imported raw material, finished goods ex-bonded or exported, balanced quantity of raw material, finished good and waste etc: Physical stock taking of raw material, finished goods and waste was also carried out in the presence of, the representatives of the licensee namely. Messrs Sahibzada Sadaat Yar and Muhammad Jamil and a stock taking report was prepared on the spot as summarized in Table-I below:- S.No. Description of goods Balance Qty as per recordPhysically foundShortage
1. Vegetable Ghee 605.00 MT 365.037 MT 339.963 MT
2. Tin Plate 365.037 MT 50.00 MT 317.963 MT
3. Tin Plate shown to be Ex-bonded vide Bills of Entry No. 256,dated13--- -- 273.363 MT 10.787 MT 2-2006 and 246 dated 2-2-2006 but without payment of leviable duty and taxes.
4. Waste of Tin Plate 279.821 MT 30.00 MT 249.281 MT
5. Waste of RBD/ Oilen Oil 304.558 MT 50.00 MT 254.558 MT
3. It was observed that the quantity of raw material, finished goods and waste products found in stock were less than the balance shown in ' the Bond Register and the shortages confirmed that the appellant had clandestinely and unauthorizedly removed the dutiable/taxable goods (raw material, finished goods and waste) without payment of the leviable duty and taxes and without proper accountal thereof as summarized in Table-II below:-- S.No. Description of goods Assessable value in Rs.Amount of duty and taxes
1. Raw material used in 339.963 MT Ghee i.e. (i) RBD Palm Oil = 142.785 MT (ii) Oilen Oil = 197.178 MT3689234 5216796Rs.5938874.00 (Custom duty @ 10800 PMT & 9050 PM, RD @ Rs.50 PMT, ST @ 15% FED @ 15% AIT @ 3% and CED @ Rs.1 PKG.)
2. Tin Plate 317.386 MT 13880419 Rs.7269870 (CD @ 25% ST 15% and AIT @ 6%)
3. Tin Plate involved in Ex-Bond Bills of Entry filed but payment not made (38. 150 MT).1566705 Rs.820562.00 (CD @ 25% ST 15% and AIT @ 6%)
S.No. Description of goods Assessable value in Rs.Amount of duty and taxes
4. Waste of Tin Plate (249.821 MT) 10307830 Rs.5398726.00 (CD @ 25% ST 15% and AIT @ 6%).
5. Waste of RBD/Oilen Oil (254.558 MT)6656054 Rs.4490301.00 Total Duty and Taxes Involved: Rs.23918333.00
4. Since on demand, the appellant could not produce any documents to prove the lawful clearance of the goods (ex-bond GDs or Shipping Bill etc) and to justify and account for the shortages (duty and taxes amounting to Rs.23.918 million), an F.I.R. No.28/2006, dated 14-11-2006 was lodged against him for fraudulent and clandestine removal of dutiable/taxable goods. Hence, the evasion of the duty and taxes was proved prima facie, as per the appellant's on record and physical stock taking, and therefore, the appellant was alleged to have violated the provisions of sections 32(3-A), 97, 104, 105, 107, 111, 116 of the Customs Act, 1969 and Manufacturing Bond Rules 352(2)(9), 358, 361, 362 of the Customs Rules, 2001, punishable under sections 156(1)(14), (57), (58),
(59) and (62) of the Act ibid. Accordingly, a contravention .Case was made out against the appellant and submitted for subsequent adjudication. A show-cause notice was issued to the appellant and after hearing the parties, the learned Additional Collector of Customs, Custom House, Peshawar vide his Order-in-Original No.41 of 2007, dated 12-3-2007, ordered as under:-- "13. Having examined the whole case record and hearing both the parties after giving them full opportunities to plead and prove their case by bringing forward all the grounds of defence and entertaining all the requests of both the prosecution and the defence in this regard, the following has been observed:
(i) The respondents were availing the manufacturing bond facility notified under Chapter XV of S.R.O.450(I)/2001, dated 18-1-2001. Under the said notification, the respondents are entitled to:
(a) Import raw material/input goods without customs levies.
(b) The record of input goods received, finished goods manufactured, exported or cleared for home consumption shall be maintained in the format set out in Appendix-IV to the above referred chapter.
(c) The export of finished goods shall be made against the Bill of Export prepared by the licensee of manufacturing bond and endorsed as "export from manufacturing bond".
(d) Removal of finished goods for home consumption subject to limitation and restriction provided in the import policy order for the time being in force, on payment of duty and taxes leviable thereon.
(ii) Under proviso to Clause 9 of Rule 352 of the Customs Rules, 2001, there is a set procedure for disposal of factory rejects (waste) which is reproduced as under:-- "the factory reject shall be allowed removal by an officer of customs not below the rank of an Assistant Collector, at the appraised value and custom duty, central excise duty and sales tax shall be levied as if it had been imported into Pakistan in that condition".
(i.e) Perusal of the record revealed that the respondent had imported input goods without payment of custom levies but they neither exported the finished goods as no bills of export have been furnished nor presented Bill of Entry to prove clearance of the same for home consumption of the finished goods as well as factory rejects on payment of leviable duty/taxes.
(iv) This is a simple case of illegal removal of raw materials, finished goods and waste thereof by the above referred licensee from the bond without payment of duty and taxes or any evidence of export thereof which is clearly evident from the record maintained by the unit itself. The prosecution through their revised statement as per Table-IV below showing quantity, value and duty/taxes involved in the raw materials, finished .Goods and waste, has proved their case, beyond any doubt regarding clandestine removal of the same without payment of leviable duty and taxes which confirms wilful and conscious commission of offence by Messrs Shahzad Ghee Mills Ltd.; in violation of the provisions of Customs Act, 1969 referred to in paras 4 and 8 above and Customs Rules, 2001, notified vide S.R.O.450(I)/2001, dated 18-6-2001; TABLE-IV 1 2 3 4 5 Description of goodsDetails of raw- materials used in the manufacture of 339.983 MTs Vegetable GheeImport Value/Assessable Value (Rs)Customs Duty (Rs)R. Duty @ Rs.50 PMT 1 2 3 4 5 Finished Goods i.e. Vegetable Ghee foundRBD Palm Oil = 142.785 MTs Olien Oil = 197.178 MTs417 US$ PMT Rs.3689234.00 427 US$ PMT Rs.5216796.00@ 10800 PMT = 1542078 7139 9859 short =339.386 MTTotal Rs.8906030@ 9050 PMT= 1780517 3322595 16998 Imported Tin Plats found short 317.386 MTs -----------Euro 34213.31 = Rs.10610602 US$ 52772.28 = Rs.3269817 Total: Rs.13880419 @25% = Rs.3470105 0 Ex-bonding vide B/E # 256 dt: 13-2-2006 and B/E # 246 dt: 2-2-2006 without duty & taxes = 38.15 MT----------- 18059.58 US$ and 5663.175 Euro = Rs.1566705@25% = Rs.3916760 Waste of imported Tin Plate found short = 249.821 MTs----------- Value Appraised @ Rs.16000 PMT = Rs.3997136@25% = Rs.9992840 Waste of RBD/Olien Oil (from finished products) shown in the record is = 304.558 MTs N Non recoverable @ 60% = 182.555 MTs Recoverable @ 40% = 122.000 MTs Found Available =50 MTs Quantity found short = 72.000 MTsShort
(i) Quantity of waste RBD oil = 36 MT
(ii) Quantity of waste of Oline Oil = 36 MTs Total: = 72 MT Value Appraised @ Rs.10000 PMT = Rs.720000 @ 10800 PMT = Rs.388000 @ 9050 PMT = Rs.325800 Total: Rs.713800 3600 Grand Total Rs.29070290 Rs.8897460 20598 6 7 8 9 10 Sales Tax @ 15%FED @ 15% AIT @ 3% CED @ Rs. 1 PKGTotal Duty & Taxes in (Rs)
6 7 8 9 10 0 785768 180727 142785 2658497 0 1051076 241747 197178 3280377 0 1836844 422474 339963 5938874 2602579 0 @ 6% 1197186 0 7269870 Rs.293757 0 Rs.135129 0 Rs.820562 749463 0 344753 0 2093500 0 215610 49590 72000 1054600 3645799 2052454 2149132 411963 17177406
(v) Hence Messrs Shahzad Ghee Mills Ltd., Gadoon Amazai Industrial Estate have been, found to have wilfully and consciously defrauded the national exchequer which is evident from the fact that the accused unit has presented Ex-bond Bill of Entry No.246, dated 2-2-2006 and Ex-Bond Bill of Entry No.256, dated 13-2-2006, removed the goods but did not pay the duty and taxes involved therein. Similarly, shortage of raw materials, finished goods and waste confirms conscious evasion of duties and taxes. This commission has been categorically admitted by the Chief Executive of Messrs Shahzad Ghee Mills Ltd., vide his letter dated 7-2-2007, whereby they have requested the Customs authorities for working out the duty and taxes involved in the instant case for which they have expressed their willingness to pay.
(vi) The contention of Messrs Shahzad Ghee Mills Ltd., to the effect that the evasion of duty and taxes and the malpractices having been committed by the lower staff of the unit does not hold ground and thus, does not exonerate the owner/directors from the charges of commission of offence. Thus, the charges levelled against Messrs Shahzad Ghee Mills Ltd., Gadoon for violation in terms of subsections (1) and (2) of section 32 and section 32A of the Customs Act, 1969 and the Customs Rules, 2001 have been established beyond any shadow of doubt.
(14) Messrs Shahzad Ghee Mill' Ltd., are therefore, directed to pay the duty and taxes to the tune of Rs.1,71,77,406 (including Customs duty = Rs.88,97,460, Regulatory duty = Rs.20,598, Sales Tax = Rs.36,45,799, Federal Excise = Rs.20,52,454, Advance Income Tax = Rs.21,49',132, Central Excise Duty = Rs.4,11,693). A mandatory penalty equal to three times the value of the goods, (i.e., Rs.29.07 million) which comes to Rs. 87.21 million is also imposed on the aforesaid unit under Clauses 14 and 14A of subsection (1) of section 156 of the Customs Act, 1969."
5. Being aggrieved of the impugned order-in-original, the appellant filed an appeal before the Collector of Customs, Sales Tax and Federal Excise (Appeals), Peshawar, who vide his Order-in- Appeal No.499 of 2007, dated 15-8-2007, ordered as under:-- "(8) I have examined the case record and considered the written as well as verbal submissions of both the parties. Perusal of the case record reveals that the Customs Staff visited the premises of Messrs Shahzad Ghee Mills Ltd., and examined the record maintained by the management of the unit i.e., imported raw material, goods ex-bonded or exported, balanced quantity of raw material, finished goods and waste, etc. The physical stock taking of raw material, finished goods and waste was, also carried out and it was observed that the quantity of raw material, finished goods and waste products found in stock was less than the balance shown in the Bond Register.
(9) The contention of the counsel that the whole stock taking was carried out behind the back of the appellant and that no such stock taking was conducted in the presence of the owners, is not tenable because physical stock taking of raw material, finished goods and waste was carried, out in the presence of Sahibzada Sadaat Yar and Muhammad Jamil, the representatives of the unit and the report has been found duly signed on 14-11-2006 by Malik Aman, Deputy, Superintendent, Mr. Abdul Saboor, Inspector, Sadaat Yar and Muhammad Jamil. The other contention of the counsel that the shortages worked out also require reassessment, as wastage has also been included in the demand,_ which was disposed of after verification by the Customs Authorities, is not considered because the waste has already been reassessed by the prosecution as pointed out during the course of adjudication proceedings and the same has been reported in para 11 of the impugned order.
(10)The appellant failed to produce any documentary proof to prove lawful clearances of the finished goods meaning thereby that the goods were removed illegally without payment of leviable duty and taxes. The duty/taxes leviable on factory rejects have also not been paid by the appellant as per procedure under Proviso to Clause 9 of Rule 352 of the Customs Rules, 2001.
Moreover, the appellant in the written reply submitted to the adjudicating authority in para-8 of grounds has admitted as under:- "(8) The management of the unit despite the above facts, being respectable taxpayers and not aware of any shortages, have submitted an application to the Collector Customs, Peshawar to work out the actual assessments/demand and they are willing to pay the applicable lawful duty and taxes despite their non involvement in the above case."
(11) Keeping in view, the above facts, overall circumstances of the case and willingness of the appellant before the adjudicating authority to pay the duty and taxes is itself an admission of the fact that the appellant combatted the offence under the aforesaid provisions of law. Therefore, I find no merit in the plea of the appellant's counsel. The appeal is rejected and the Order-inOriginal No.41 of 2007, dated 27-3-2007 is upheld."
6. Being further aggrieved by the impugned order-in-appeal, the appellant has filed the instant appeal to this Tribunal, inter alia, on the following grounds:
(a) that the seizing agency invoked sections 32(3A), 97, 104, 105, 107, 116 read with sections 156(1)
(14), (57), (58) and (59) of the Customs Act, 1969, which are neither relevant nor applicable in the appellant's case;
(b) that the Superior Courts have clearly laid down the principles that in case if the goods are removed without permission/ clearance by the custom's authorities and provided it is proved, the offence is punishable only under section 156(1) (62) of the Customs Act, 1969 and no other provisions and Sections of the Customs Act, 1969 are applicable;
(c) that the stock taking report speaks for itself that the same is not based on actual stock taking, but based on surmises and conjectures which is not permissible under the provisions of law;
(d) that section 92 of the Customs Act, 1969 clearly envisages that before any goods lodged in a warehouse are opened, weighed or examined by an appropriate officer, the licensee/owner should be informed by an order in writing that the goods are to be examined, which the concerned custom authorities have violated as no such stock taking was conducted in presence of the owners;
(e) that the whole stock taking was carried out behind the back of the appellant and as held by Superior Courts, no reliance can be placed on the evidence collected behind the back of the appellant;
(f) that the shortages worked out alio require reassessment, as wastage has also been included in the demand, which is disposed of after verification by the custom authorities;
(g) that the Customs Rule No.358 of the Manufacturing Bond Rules clearly stipulates that the jurisdiction for any un-accounted goods in a warehouse is of the Assistant Collector and the stock taking report is neither signed by the Assistant Collector, which clearly proves his unawareness and his non presence during the stock taking as stated in the F.I.R.;
(h) that it was pointed out to the learned Collector (Appeals) during the adjudication of the case that the Additional Collector had passed the order arbitrary and against the principles of safe administration of justice as the appellant was directed to ascertain the quantities vide dated 13- 3-2007, but the orders were passed on 12-3-2007 before actual joint restocking could be carried out;
(i) that the learned Additional Collector had already pre judged the case as is evident from the order-in-original itself wherein the date of judgment of the case is 12-3-2007, a day prior to the issuance of the above letter for re-ascertaining the quantities; that a bare reading of the stock taking report itself proves the genuineness and accuracy of the quantities of physically found goods, which are 365.037 MT Vegetable Ghee, 50.00 MT Tin Plate, 30.00 MT Waste of Tin Plate and 50 MT of waste of RBD/Olien Oil. It is beyond comprehension as to how these quantities were measured in the time span as claimed by the custom authorities in the F.I.R.;
(k) that the wastage of RBD/Olien Oil as per provisions of the Customs Act, 1969 is destroyed and is not liable to any duties and taxes and the demand of duty on this item is also unjustified;
(1) that the prosecution has also admitted its mistake of the stock taking which clearly proves the assertions of the appellant that the stock taking is not based on actual physical verification and cannot be made and considered as evidence being based on surmises and conjectures;
(m) that the imposition of penalty equal to three times the value is not justified and sustainable under sections 14 and 14(A) of section 156(1) as even if the contravention is proved, these sections of the Customs Act, 1969 are not applicable in the appellant's case;
(n) that the management of the unit despite the above facts, being respectable taxpayers and not aware of any shortages, have submitted an application to the Collector of Customs, Peshawar to work out the actual assessment/demand and they are willing to pay the applicable lawful duty and taxes despite their noninvolvement in the above case;
(o) that the custom's authorities presently have taken over the premises along with the stocks vide C.No.581, dated 23-8-2007 issued by the attachment officer and all the machinery/ stocks/building are in their possession and no authorized person of the appellant was permitted in the unit; and
(p) that the custom's authorities have taken over the unit premises and the same is in their possession for the past one year and the appellant nor his staff is permitted to enter the premises and neither the appellant is allowed despite applications to dispose of the perishable items.
7. On the last date of hearing fixed for 13-10-2009, the learned counsel for the appellant almost reiterated the same arguments as advanced in the memo. Of appeal as well as agitated in the rejoinder to the para were comments. He further contended that the show-cause notice issued in the instant case is legally defective and as such all subsequent proceedings are also void and not sustainable in the eyes of law. He stated that a show-cause notice must cite the relevant provisions of law, whereas the learned adjudicating authority has invoked all the provisions of section 32 and even some very important sections of the relevant law have not been invoked at all.
He further stated that the impugned orders by the lower forums are non-speaking and non- judicious, as various submissions made by the appellant before them at length were not taken up for detailed deliberations and as such an order, which is not a speaking order and devoid of reasons is not sustainable in the eyes of law. He forcefully asserted that the whole exercise of physical stocktaking was carried out behind the back of the appellant and as such no reliance can be placed on the same in the light of pronouncements by the Superior Courts in this behalf. He asserted that the imposition of penalty equal to three times of the value of the impugned goods is not only very harsh but the same is even unjustifiable in the light of various judgments of the Superior Courts. He pointed out that even in the various notifications issued by the Federal Board of Revenue (FBR), the suggested redemption fine and penalty are upto 30% of the customs value of the goods and not more than that and even this aspect was not taken into consideration by the learned adjudicating authority while imposing heavy penalty on the appellant and thus, the impugned order by the lower forum is non-judicious and bad in the eyes of law. On the other hand, the DR reiterated the same arguments as advanced in the written comments to the memo. Of appeal and stated that all proceedings in the instant case were initiated and completed in accordance with law and even the appellant has shown willingness to deposit the evaded amount of duty and taxes, which is itself an admission of the fact that they were involved in the illegal removal of the impugned goods from their warehouse without properly observing the provisions of the relevant sections of the Customs Act, 1969.
8. We have minutely perused the available case record with the assistance of the representatives of the rival parties and have also anxiously considered the oral and written submissions made by them. Now, we would like to go into the deeper appreciation of the factual and legal issues raised and agitated by the appellant in the instant appeal in the legally convincing manner, as dilated upon in the succeeding paras, in the were of the observations by the Honourable High Court in its judgment in the case of Messrs Engro Chemical Pakistan Ltd. v. Additional Collector of Customs, as reported in 2003 PTD 777, wherein it has been held that:--- "The law is well settled, that every judicial order should be a speaking order and particularly in tax matters, where the scope of appeal/reference before the High Court is very limited. In the absence of speaking orders-, the High Court finds it difficult to decide the questions of law, for under section 36-C of the Central Excises Act, 1944, and under the analogues provisions of Customs Act and Sales Tax Act, 1944, only such questions of law can be raised before the High Court as arise out of the order of the Tribunal. Thus, if the learned Tribunal fails to pass proper judicial order, by considering all the facts and points of law raised before it, amounts to negation of justice. The Tribunal is always required to dilate upon all the questions of facts and law agitated before it, so that, the High Court is not handicapped in deciding the questions of law."
9. The DR has pointed out that the criminal proceedings in the instant case are being finalized and the charges are likely to be established. Now the question which arises for consideration is whether the adjudication proceedings by Customs and criminal prosecution by the Special Judge, Custom for the same offence are permissible? We observe that the relevant provisions of the Customs Act, 1969, provide distinct penalties for (a) confiscation of the offending goods (or proceedings for the confiscation of the goods), or recovery of short-levied/non-levied duty/taxes and (b) for imprisonment and fine on the person concerned, in the commission of the offence. It is now a well settled law, that the criminal proceedings before the Special Judge, Custom and the A confiscation/recovery proceedings before the adjudication/appellate authority are concurrent, independent and mutually exclusive. It is thus, clear, that the adjudication/appellate proceedings for the confiscation of the goods or recovery of short-levied/non-levied duty/taxes under the Act, neither involve a criminal prosecution nor a punishment for an offence. No trial of the offence takes place for any offence, nor is any punishment awarded to the offender. Thus, the two proceedings are not inter-dependent and neither could remain suspended for the sake of the other. (Reliance: Adam v. Collector of Customs, as reported in PLD 1969 SC 446).
10. At this juncture, we would like to observe that the most significant cornerstone among the three cornerstones of the principles of natural justice is that the adjudicating officer shall pass a speaking order, which is one of the exhilarating principles of the whole concept, around which the principles of natural justice revolve. An order by the adjudicating officer must be based upon sound, cogent and plausible reasons and he should reflect his true inner process of thought, through introspection. In fact, recorded reasons are the essence of a speaking order. However, we are constrained to be dragged to make an irresistible observation that the impugned orders by the lower fora suffer from want of application of mind, to the various submissions made before them at length by the appellant. They have not enjoined to fully dilate upon the legal and factual issues raised and agitated before them by the appellant. If such submissions were not dilated upon in accordance with law, the orders so issued by the lower fora cannot be considered as speaking orders, which is an essential requirement of natural justice. It is only when this is done, then it becomes evident that the adjudicating authority as well as the first appellate authority are clear about the factual and legal issues involved in the case and have minutely examined them before giving its decision. It would also afford the aforesaid authorities the facility of going through the grounds for such decision.
11. In terms of section 24A of the General Clauses Act, it is a statutory obligation of all judicial/quasi- judicial authorities that the judicial/adjudication order must be a speaking order manifesting by itself that the judicial/adjudicating authority has applied his judicial mind to the issues and the points of controversy involved in the case. Furthermore, when the reasons would not be forthcoming, obviously the appellate authority/court would be deprived of the valuable views of the subordinate fora. We are, thus, of the considered view that an order, which is not a speaking order, and devoid of reasons is not sustainable in the eyes of law, being in contravention of the law.
Superior Courts in a number of cases have declared such orders to be void ab initio and without any legal effect. The paradoxical situation arising out of the impugned orders, in our opinion, mainly stems from the fact, that the adjudicating authority as well as the first appellate authority did ,not frame issues properly, before passing orders. In the absence of properly framing issues, it is our considered view that the adjudicating authority or the first appellate authority can follow any trajectory and even sail into uncharted territories, which is not appreciable in the eyes of law. We would, therefore, suggest that the adjudicating authority and the first appellate authority must pass speaking orders, duly supported by reasoning, and showing due application of mind to the points of fact(s) and law applicable while disposing of the cause before it. We, therefore, humbly suggest that the adjudicating authority as well as the first appellate authority must properly frame issues before final disposal of a case.
12. Our study shows that the entire gamut of the bonded warehouses and the conditions governing the movement of goods and the storage of goods, therein, is contained in sections 84 to 119 of the Customs Act, 1969. These provisions afford the facility of storage of duty free goods, in the warehouses for the permissible period and subsequent clearance for .Home consumption under section 104 ibid or export to a foreign country. As provided by section 98 ibid, the maximum period for which the goods can be stored in the warehouse is now one year and for perishable goods, the permissible period is now three months. However, the Collector as well as the Board have been empowered to extend this period further, under section 98 ibid. However, in terms of section 97 ibid, no warehoused goods may be taken out of any warehouse, except on clearance for home consumption or export or for removal to another warehouse or as othervise provided in the Act.
(Reliance Duty Free Shop Ltd. v. Central Board of Revenue as reported in 2002 PTD 1167).
13. The learned counsel for the appellant has contended that the impugned show-cause notice dated 7-12-2006, duly amended vide corrigendum dated 9-2-2007, is not sustainable in the eyes of law being legally defective. He has asserted that without mentioning some relevant provisions of the Customs Act, 1969, the Sales Tax Act, 1990, the Federal Excise Act, 2005, .The Income Tax Ordinance, 2001 and the Imports and Exports (Control) Act, 1950, in the impugned show-cause notice, duly amended, the adjudication prpceedings are legally defective and thus, the impugned Order-in-Original is not enforceable, being invalid. Now, the question which arises for consideration is whether the impugned show-cause notice dated 7-12-2006, as duly amended, is legally defective as contended by the appellants counsel? We intend to find an answer to this question in the manner as dilated upon in the succeeding sub-paras:-;-
(i) We anxiously notice that the following important provisions of the Act have not been invoked in the instant case: Sections 18, 19, 79, 80, 86, 95, 110 and 112 of the Customs Act, 1969, read with section 3(A) of the Federal Excise Act, 2005; Section 6 of the Sales Tax Act, 1990, section 148 of the Income Tax Act and 3(1) of the Imports and Exports (Control) Act, 1950, punishable. Under section 156(1)(47) and (54) of the Act, read with section 16(2) of the Federal Excise Act, 2005, sections 33(1)(5) and 34 of the Sales Tax Act, 1990 and section 191 of the Income Tax Act, and section 3(3) of the Imports and Exports (Control) Act, 1950.
(ii) It is our considered view that a show-cause notice must cite the relevant provisions of law, under which it is issued. In support thereof, we advert to the judgment in the case of D.G. Khan Cement Company Ltd. v. Collector of Customs, Sales Tax and Central Excise, Multan, as reported in 2003 PTD 1797, wherein it has been held that: "Sections 32(2) and 32(3) (now (3A) also) provide two separate and distinct periods of limitations, depending upon the cause of short recovery being either mala fide, or mere error or inadvertence.
An authority issuing the show-cause notice must cite the relevant provisions of the law, which were being invoked for the purpose of the notice. The show-cause notice must also incorporate the grounds and reasons, on the basis of which such notice is issued, so that it could be ascertained, whether the notice is issued under section 32(2) or section 32(3) (now (3A) also), Failure on the part of the authority issuing the show-cause notice , shall render such notice as invalid and illegal. A show-cause notice would be bad in law, where it constituted a mere narrations of facts, without stating as to whether it was the result of inadvertence, error or misconstruction."
(a) We notice that in the instant case, as evident from the impugned show-cause notice dated 7- 12-2006, as duly amended, the learned adjudicating authority has invoked all the provisions of section 32 read with S.R.O. 450(1)/2001, dated 18-1-2001, relevant parts whereof are reproduced in verbatim as hereinbelow.
"3. A case against the management of the unit has also been registered vide F.I.R. No.28 of 2006 dated 14-11-2006 by the I and P Branch, Custom House, Peshawar for the fraudulent act of clandestine removal of dutiable/taxable goods under the relevant provisions of the Customs Act, 1969. The investigation for the prosecution of the case is being carried out separately by the Investigation Cell, Custom House, Peshawar. However, the evasion of the duty and taxes was, since proved as per the unit's on record, the management reported to be guilty of violating the provisions of sections 32(3-A), 97, 104, 105, 107, 111, 116 of the Customs Act, 1969 and Manufacturing Bond Rules 352(2) (9), 358, 361, 362 of Customs Rules, 2001 punishable under sections 156(1)(4), (57), (58), (59), (62)ibid.
4. Now, therefore, you Messrs Shahzad Ghee Mills Ltd., Gadoon Amazai are hereby called upon to show cause within ten days of the receipt of this notice as to why, besides other action including the one due. Under sections 32(3A), 156(1) (14), (57), (58), (59), (62) of the Customs Act, 1969 for violation of sections 97, 104, 105, 107, 111, 116 ibid and Manufacturing Bond Rules 352(2) (9), 358, 361, 362 of Customs Rules, 2001, the duty and taxes amounting to Rs.2,39, 18,333 evaded by you in the aforesaid manners are not adjudged and recovered from you under relevant provision of the Customs Act, 1969. You may produce any documentary evidence, if available with you in your defence along with a written reply within the time specified above. Failing this, the case will be decided on the basis of evidence available on record under the laid-down provisions of the Customs Act, 1969."
(b) Consequently the previous show-cause notice issued vide C.
No.Cus/Adli/Add:C/730/2006/16654, dated 7-12-2006 was accordingly modified as under:--
(i) The provisions of law as mentioned in para-3 may be read as sections 32(2), (3-A) 32-A, 97, 104, 105, 107, 111, 116 of the Customs Act, 1969 and Manufacturing Bond Rules 352(2)(9), 358, 361, 362 of Customs Rules, 2001, punishable under sections 156(1), (10-A), (14), (14-A), (57), (59), (62) ibid.
(ii) The provisions of law as mentioned in para-4 may be read as sections 32(2), (3-A) 32-A, 156(1)
(10-A), (14), (14-A), (57), (58), (62) of the Customs Act, 1969.
(c) In view of the aforesaid judgment of the honourable Court, we observe that the learned adjudicating authority has erred by invoking all the provisions of section 32 of the Act, and not the relevant provisions thereof, for the purpose of the statutory notice and it cannot be ascertained whether the said notice has been issued under section 32(2) or section 32(3) and (3A) of the Act and such failure on the part of the said authority has rendered the impugned show-cause notice not to be in consonance with the requirements of section 32 of the Act.
(i.e) It is now a well settled law, that a show-cause notice in terms of section 32 of the Act, must disclose all the material facts, on the basis of which the charges of mis-declaration, connivance, suppression or fraud are intended to be raised. The judgment of a Division Bench of the Dacca High Court in a case of Osman Abdul Karim Bawaney v. Collector of Customs, as reported in PLD 1962 Dacca 162, is an outstanding case, from which the prominent distinction, between an action for the recovery of government revenue, against (a) an innocent mistake or misstatement, falling under subsection (3) (now subsection (3A) also) of section 32 of the Act and (b) recovery of revenue nonrecovered/short recovered, on account of a 'false" statement of the importer (within the meaning of subsection (1) of section 32) under subsection (2) of section 32 ibid, can be easily ascertained.
(a) We observe that in the instant case, the adjudicating authority has not bothered to make a prominent distinction for initiating an action for the recovery of government revenue against (a) an innocent mistake or misstatement, falling under subsections (3), (3A) of section 32 ibid and (b) recovery of revenue not levied/short recovered, on account of a "false" statement of the appellant (within the meaning of subsection (1) of section 32) falling under subsection (2) of section 32 ibid. Apparently, the impugned show-cause notice in the instant case is vague and misleading, by way of invoking all the provisions of section 32 ibid, so as to cover the period of limitation. The instant show-cause notice is thus, considered bad in law as it does not differentiate whether it was a result of collusion or wilful act of the appellant or whether it was as a result of inadvertence, error or misconstruction. As already discussed aforesaid, section 32(2) and section 32(3) and (3A) ibid provide for two separate and distinct periods of limitations, depending upon the cause of nonrecovery/short recovery, being either mala fide or mere error or inadvertence.
(b) In this context, we advert to the judgment of the Superior Court in the case of Iram Ghee Mills Ltd. v. Appellate Tribunal, as reported in 2004 PTD 559, wherein the honourable Court has observed that "So far as subsection (3) (now (3A) also) is concerned, it solely deals with the retrieval of tax and thus, takes care of loss of revenue suffered by the customs department, not on account of any misdeclaration or misstatement, but on account of inadvertence, error or misconstruction on the part of the assessee or customs officials. Thus, although subsection (3) (now (3A) also) is part of section 32, but it has no nexus with subsection (1) of section 32.' It is totally independent provision and for invoking this provision no misdeclaration or misstatement is required to be shown."
(c) Similarly, in the case of Quetta Textile Mills Ltd. v. Government of Pakistan, etc., as reported in 1990 ALD 582, wherein the honourable Court has held that: "Importer's/Appellant's case was not covered by section 32(2) and at best it could be a case of inadvertence or omission on the part of Customs authorities which was covered by section 32(3).
As the limitation prescribed for issuance of notice is only 6 months (now three years) from relevant date which in this case was the date of clearance of goods. Impugned notice, held, was wholly without jurisdiction."
(d) Likewise, in the case of Messrs Central Cotton Mills, Ltd. v. Collector, etc. As reported in 1992 CLC 841, the honourable Court has held that: "Importers were not shown to have made any positive assersection of fact which could bring their case within mischief of section 32(2) providing period of 3 years (now five years) for issuing show- cause notice, but at most their case was falling under section 32(3), which provides period .Of 6 months (now three Years) for issuance of notice for payment of customs duty and ex-bonding machinery. Demand-cum show-cause notice issued for import long after expiry of 6 months (now three years), held, barred by time."
(iv) We feel that the foundations of a show-cause notice are based upon its bona fides. It must convey an impression, that the officer issuing the statutory notice has applied his mind to the facts of the case and has not issued the notice in a mechanical manner. Therefore, only those sections should be cited in the notice which are material and relevant and have been fixed with proper application of the judicial mind. Indiscriminate citations of multiple sections have resulted in the show-cause notices being declared as illegal. Notice must be with reference to the charge on which the proceedings are to be held. The person against whom proceedings are held cannot be punished for a charge different from the one, for which notice had been given. Similarly, a non- levy/short-levy may be under laws other than the Customs Act, like the Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal Excise Act, 2005. In all such cases, the provisions which have been found to have been contravened under the other laws must also properly be cited in the show-cause notice.
(a) As discussed by us in the preceding paras, the customs authorities often issue show-cause notices both under subsections (2) and (3), (3A) of section 32 of the Customs Act, 1969. The avowed purpose of quoting both these subsections is to take shelter under the higher limitation period of five years, provided by subsection (2) of section 32 ibid. The limitation under subsections (3), (3A) ibid is three years. It is manifest, that either the person concerned has not paid/short paid the custom duty through inadvertence, error, or, misconstruction, or, through mis-declaration or mis-statement. It cannot be both. Therefore, either section 32(2) or section 32(3), (3A) ibid will apply, which means, that reference to all the Subsections of section 32 ibid is not proper and legal.
This position was also affirmed by the CBR (now FBR) in its revisional jurisdiction and it was held, that there is no legal force in the view, that both subsection (2) and subsection (3) (now subsection (3A) also) of section 32 ibid can apply simultaneously to non-levy/short levy of duty. In this view of the matter, the C.B.R. (now FBR) whilst exercising its revisional jurisdiction under section
195. Ibid, set aside (original and appellate orders and struck down the same as time barred, such notices, as were issued after a period of four months (which period now has been enhanced to three years), under subsection (3) of section 32 ibid. Reliance is placed on the judgment in the case of Khawaja Tanneries Ltd. v. Controller of Valuation, as reported in NLR 1987 TD 202.
(v) We are of the firm view that a show-cause notice should be based on almost accuracy and factual position. Where a show-cause notice does not specifically allege collusion, misdeclaration, suppression of facts or fraud, as a basis for issuance for the recovery of the non-levied/short levied amount, the importer cannot adequately reply to it. Where any charge is levelled against any person, he should be intimated of such charge in clear terms otherwise depending on the facts of each 'case, it would amount to "denial of the right to defend". In this behalf, we also gain strength from the judgment in the case of Government of Pakistan v. Shah Sons, as reported in 1991 CLC Note 338 at Page 259. We observe that in the instant case, the impugned show-cause notice is vague and misleading.
(a) We observe that in the instant case, the customs authorities did not exercise due diligence and care as the warehouse of the appellants was under double lock and keys as per the requirement of law, which would undoubtedly, raise a legal presumption that the customs staff had connived with the importers while the impugned goods were being illegally removed from the warehouse. So the instant show-cause notice, wherein all the provisions of section 32 of the Act have been invoked, is legally defective due to the fact that it does not allege any collusion, on the part of the appellant/importer and the customs staff and thus, the legal presumption would be that the case would not fall under section 32(2) ibid.
(b) In the case of 'ram Ghee Mills Ltd., v. The Appellate Tribunal, as reported in 2004 PTD 559, the apex Court has observed that: "A perusal of section 32 ibid shows, that subsection (1) ibid contains the definition of the offence constituted on account of making misdeclaration or misstatement in connection with any matter of customs. Subsection (2) of section 32 ibid, takes care of retrieving the State revenue and provides complete mechanism, including the procedure and the period of limitation, within which a duty or charge can be recovered, which was not levied or was short-levied or was erroneously refunded. The language of subsection (2) ibid is very clear to the effect, that mere misdeclaration or misstatement to the Customs official is sufficient per se, for making good the loss caused to the State revenue. No question of any guilty mind or mens-rea is involved.
Subsection (2) of section 32 ibid has although nexus with subsection (1) ibid but to the extent of misdeclaration/ misstatement only and is not contingent upon commission of offence defined in subsection (1) ibid, because for the purpose of constituting offence, which by its very nature is quasi criminal or criminal, it is necessary that there should be material available with the customs authorities, to the effect that the misdeclaration/misstatement was made with the knowledge or reason to believe, that such document or statement is false. No such condition is attached for invoking the provisions contained in subsection (2) ibid and as already observed mere misdeclaration or misstatement without commission of offence is sufficient.
So far as subsection (3) ibid (now subsection (3A) also) is concerned, it solely deals with the retrieval of tax and thus, takes care of loss of revenue suffered by the customs department, not on account of any misdeclaration or misstatement, but on account of inadvertence, error or misconstruction on the part of the assessee or customs officials. Thus, although subsection (3) ibid (now subsection (3A) also) is part of section 32 ibid, but it has no nexus with subsection (1) of section 32 ibid. It is totally independent provision and for invoking this provision, no misdeclaration or misstatement is required to be shown".
(vi) It is now a well settled law, that where the initial order or statutory notice is void, all subsequent proceedings, orI superstructures built on it are also void. Where any adverse finding is given in the adjudication order, on allegations or contentions or findings which are not incorporated in the show-cause notice, the entire proceedings would be rendered as void for reason of breach of natural justice, which is breach of law as held by the Supreme Court in the case of Anisa Rehman's v. P.I.A., as reported in 1994 SCMR 2234. Similarly, in the cases of Motilal Lalchand Shah v. L.H. Kau, as reported in 1984 (17) E.L.T. 294 (Guj), Raphael Pharmaceuticals v.
Superintendent, as reported in 1988 (38) E.L.T. 11 and Koruta Rubber Co. v. Collector, as reported in 1987 (32) E.L.T. 216, the show-cause notice showing one ground for confiscation and penalty, but the confiscation and penalty imposed on entirely different grounds was held to be illegal. Reliance is placed in the case of Kamran Industries v. Collector of Customs, as reported in PLD 1996 Karachi
68. We find that in the instant case also, the show-cause notice dated 1 7-12-2006 was issued on the grounds as mentioned therein, whereas in the corrigendum dated 9-2-2007 to the aforesaid show-cause notice, additional grounds as contained therein were incorporated therein by invoking more provisions of the law, which were not sustainable in the eyes of law, as discussed in the succeeding paras.
(vii)According to Black's Law Dictionary, "mistake" means "some unintentional act, omission, or error arising from ignorance, surprise, imposition, or misplaced confidence.. A mistake exists J when a person, under some erroneous conviction of law or fact, does or omits to do, some act which, but for the erroneous conviction, he would not have done or omitted". We feel that those defects which can be gleaned from examining the pleadings and which do not require going outside the record could be regarded, as defects or mistakes apparent on the fact of the records.
We notice that the only provision in the Customs Act, 1969, empowering a customs officer to correct errors is embodied in section 206 of the Act. According' to the said provisions, a clerical or an arithmetical error in any decision or order and arising, therein, from an accidental slip or omission can be corrected. There is no other provision in the Act, whereby, the character or nature of on-going proceedings can be changed by a customs officer.
Thus, in terms of customs enactment, new liabilities cannot be created, through a corrigendum.
(a) In case of a corrigendum to correct a mistake in the show-cause notice, the limitation period is to be counted, from the date of the first notice. The word "corrigendum" of an original show- cause notice, obviously means, that an error or mistake in K respect of material particulars in the original show-cause notice is required to be made, through the corrigendum. However, it does not mean, that new rights or obligations can be created, through a corrigendum.
(b) The provisions of section 180 are quite exhaustive and the same place an obligation on the part of a customs .Officer to issue a show-cause notice. Once the adjudicating authority arrives at a conclusion, that, for instance, some important relevant sections of the law have not been invoked, an independent show-cause notice is required to be issued. By issuing a corrigendum, so as to bring an infringement within the ambit of existing proceedings, violates the principles of natural justice. Such improprieties being apparent on the face of the records could not be upheld.
(Reliance: Hassan Associates v. Additional Collector of Customs (Adjudication), as reported in 2003 PTD (Trib.) 1489).
(viii)It is necessary, that proper care should be taken to include all the points of facts and law in the show-cause notice, so that the necessity of a corrigendum or second show-cause notice does not arise. Although there is no law whereby a second show-cause notice is precluded in order to incorporate additional points of facts and law, yet, at the same time, if the second or revised show-cause notice enlarges the scope of the earlier one, by taking advantage of the defence already disclosed by the party, in his reply, thereto, and also in the personal hearings, it would be illegal and barred by the principles, analogous to Res-judicata. (Reliance: Jasoda Jasoda Jiban Saha v. S.K. Chatterjee AIR 1961 Cal. 195).
(a) A corrigendum can be issued for rectifying any mistake in the show-cause notice, but where the rectification affects the basis of the show-cause notice, then the limitation period, if any, has to be computed with effect from the date of the issue of the corrigenda or the revised show- cause notice and not from the date of the first show-cause notice originally served.
Furthermore, where any corrections are made other than clerical errors to compensate for any provisions of law, which have been incorrectly invoked or not invoked, the same will render the original show-cause notice as time barred, if such corrections are not made within the original validity of the show-cause notice. Here, we revert to the decision of Lahore High Court in the case of Jind Ram v. Assistant Collector of Customs. In the case of Lalwani Earthmowers Limited, 1999
(113) ELT 641, the Tribunal said that: "Once the initial show-cause notice was without jurisdiction [having been issued by the Assistant Collector instead of the Collector], the infirmity could not be cured by the adjudicating authority.
Further, we find that the Addl. Collector issued a revised show-cause notice on 17-1-1990 and proceeded to adjudicate the matter taking both the show-cause notices together. We consider, that the procedure adopted by the Addl. Collector was not proper as he had to adjudicate the matter either under the remand order or on the strength of the revised show-cause notice. In this case, we consider that the first show-cause notice was beyond jurisdiction and that in the second show-cause notice, we consider that there could be no jurisdiction for alleging suppression."
(ix) In view of the above deliberations, we are inclined to agree with the learned counsel for the appellant that the impugned show-cause notice dated 7-12-2006, as duly amended by corrigendum dated 9-2-2007, is legally defective.
14. The learned counsel for the appellant has contended that the detecting agency has not invoked certain relevant provisions of the Customs Act and other related laws, which empower them to collect any non/short-levied tax, but has not been collected and thus, the impugned show-cause notice, duly amended and the impugned Order-in-Original are legally defective. We anxiously observe that a clear distinction has been drawn between the machinery provisions and the charging provisions of a statute, in the Halsbury's'Laws of England-4th. Edition Volume 23, Para 29, to the following effect: "It is important to distinguish between charging provisions, which impose the charge to tax, and machinery provisions, which provide the machinery for the qualification of the charge and the levying and collection of the tax in respect of the charge so imposed. Machinery provisions do not impose a charge, or, extend, or, restrict a charge, elsewhere clearly imposed".
(i) While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner, that a charge to tax is not defeated (Reliance: Associated Cement Co. v. C. T.O., as reported in 48 S.T.C. 466 SC).
(ii) In the case of M.Y. Electronics Industries Ltd., the Supreme Court cited with approval a passage from the observations of a Division Bench of the High Court of Sindh, in the case of Crescent Pak.
Industries (Ltd) v. Government of Pakistan, as reported in 1990 PTD 29, wherein the difference between the charging provisions of a statute and the machinery part was clearly delineated, in the context of section 3(5) of the Sales Tax Act, 1951. It was held, that the purpose of section 3(5) ibid was the introduction of the machinery provisions, operating under the Customs Act, for the realization under the Sales Tax Act, as well. Section 3(5) of the Sales Tax Act, 1990, only prescribes the manner, in which the sales tax is to be paid and not the imposition or levy of sales tax, which is provided for elsewhere in the Sales Tax Act, itself. The application of the Customs Act, 1969, pursuant to the provisions of section 3(5) ibid does not divest sales tax of its inherent attributes and sales tax does not become a customs duty.
15. Now, the next question which arises for consideration is whether the power to collect any non- levied/short-levied sales tax, federal excise duty and advance income tax lies within the jurisdiction of customs authorities? We notice that Section 18 is the charging section, which creates the charge, at the time of "import" or "export", as the case may be. However, the payability is regulated by the other provisions spread over in the Customs Act. Thus, for instance, in the case of the goods entered into bond, the customs duties are deferred and then paid in terms of the provisions of section 30(b) ibid read with section 104 ibid. (Reliance: Duty Free Shop Limited v. Central Board of Revenue, as reported in 2002 PTD 1167).
16. We also notice that the Provisions of section 32(2) or sections 32(3) and (3A) ibid, invest an authority in the appropriate M officer of the Customs, to issue a show-cause notice, for any non/short recovery of "duty or charge". We are of the firm view that the appropriate customs officer certainly possesses the power to recover any non/short levied tax, which he was required to collect, but has not been collected. Our aforesaid view is premised on the grounds that the word "charge" is were enough, to include regulatory duty, sales tax, federal excise duty, advance income tax which are found to be non/short-recovered, by the appropriate customs officer. Further; although the customs officer merely collects some of the aforesaid taxes on behalf of the relevant department; yet, as a collecting agent, his power to collect these taxes, should naturally include the ancillary power to recover any non/short collected amount as well. In fact, the word "charge" as used in the above subsections, include any kind of encumbrance, not satisfied by the importer, at the time of the clearance of his goods from the warehouse either for home consumption or export; and such an encumbrance encompass, within its nest, any other kind of tax, which was required to be collected by the appropriate customs officer, but was not so collected, either on account of mis-declaration/mis-statement by suppression of facts, fraud, etc., by the importer, or, on account of error, inadvertence or mistake. Moreover, there is direct nexus between subsection (1) of section 18 of the Customs Act, 1969, which provides, that customs-duties shall be levied at such rates as are prescribed in the First Schedule and the Second Schedule or under any other law for the time being in force and section 6 of the Sales Tax Act, 1990, section 3-A of the Federal Excise Act, 2005 and section 148 of the Income Tax Ordinance, 2001, empower the Collector of Customs, to recover these taxes in the same manner and at the same time, as if it were a duty of customs. However, the aforesaid Sections of the relevant law (even Section 18 of the Customs Act, 1969) have not been invoked in the impugned show-cause notice dated 7-12-2006, as duly amended by corrigendum dated 9-2-2007. The show-cause notice is, thus, vague and not in conformity with the legal requirements of the relevant provisions of law.
17. Our study of Clause 14 of section 156(1) of the Customs Act, 1969 shows that it deals with an important area of the Customs Act, 1969, namely, the cases relating to untrue statements or misdeclarations, which are punishable under section 32 of the Act. It provides, that whoever infringes the provisions of section 32, he shall be liable to a penalty not exceeding twenty five thousand rupees or three times the value of the goods, in respect of which such offence is committed, whichever be greater and such goods _shall also be liable to confiscation. Further, criminal proceedings can also be initiated against the accused person. By Finance Ordinance XXVII of 1981, an additional punishment on conviction, extending to three years has also been provided besides fine or both. Similarly, Clause 14-A of section 156(1) of the Customs Act, 1969, contemplates some very harsh penalties, in the event of infringement of the provisions of section 32-A. Section 32-A was specially inserted through Finance Act, 2004, with a view to preempt the fiscal frauds, which could take place, on the introduction of electronically filed GDs. Any person contravening the provisions of section 32-A, shall be liable to a penalty not exceeding three times the value of the goods in respect of which such offence is committed and such goods shall also be liable to confiscation.
18. The learned counsel for the appellant has contended that the learned adjudicating authority has imposed heavy penalty equal to three times of the value of the impugned goods, which is not justified and not sustainable in the eyes of law being very harsh. We are inclined to agree with the learned counsel for the appellant in this behalf in the were of the principles governing the imposition of penalty as judicially decided, some of which are briefly discussed below:
(i) The monetary penalty cannot be imposed, where alleg ed misdeclaration does not involve loss of revenue. (Reliance: Kamran Industries v. Collector of Customs (Exports), as reported in PLD 1996 Karachi 68). It is a well settled principle of jurisprudence that a person cannot be said to have any knowledge or reason to believe that his declaration was false and untrue in any material particular, unless he is also the beneficiary of an offence. It is a fact that in this particular case, the impugned goods were illegally removed from the warehouse. It is also an admitted fact that the appellant itself has shown willingness to pay leviable duty and taxes on the goods found short in the bonded warehouse. So, undoubtedly, the appellant is beneficial of offence as it involve loss of revenue. Therefore, the benefit of this principle cannot be extended to him;
(ii) Penalty can only be levied in case of wilful evasion of duty. It is a well settled principle of jurisprudence that the penalty can only be levied in case of wilful evasion of duty and taxes and the penalty could be declared as illegal if no wilful breach is discovered. However, in the instant case, the goods were removed from the bonded warehouse in the illegal manner and as such, the imposition of a reasonable penalty could be justified; (i.e) Customs officials cannot escape their responsibilities to ensure that the goods are not removed illegally from the bonded warehouse. Where the goods were removed from the warehouse unlawfully, the Customs Department cannot escape its responsibilities (besides the appellant) to see that the goods are not removed unlawfully and without the payment of duty and taxes. Thus, heavy penalty is not justifiable in such cases. It is the spirit of the Act to impose in all circumstances the penalty, as double or thrice the customs value of the goods, but to secure the payment of the duty and taxes in case of violation. There is an established law, that the provisions of penalty are criminal in nature and for that "mens rea" or intention of the party is relevant. (Reliance: Sardar Chemical Gadoon v. Collector of Customs and Central Excise, Peshawar, as reported in PTCL 1999 CL 813).
(iv) Heavy penalties even in cases of absolute liability have been deprecated, The appellant has apparently been heavily penalized (equal to three times of the value of the goods) on the ground that the offence committed by him was of absolute liability and even if no mens rea was present, the mere violation of the provisions of law created the penal liabilities under the Act. However, harsh penalties even in case of absolute liability have been deprecated by the Appellate Tribunal/High Courts/Superior Court.
(v) Where the appellant did not show any resistance and voluntarily paid the amount of duty and taxes, the retention of penalty imposed was remitted on the ground that it would rather defeat the very purpose of justice. (Reliance: Scanmatic Systems (Pvt.) Ltd. v. The Collector of Customs, Customs, Excise and Sales Tax Appellate Tribunal, Lahore, as reported in PTCL 1999 CL 114). In the instant case also, the appellant has not shown any resistance and volunteered to pay the duty and taxes leviable on the goods found short in the bonded warehouse and as such, if not remitted, at least reduction of the heavy penalty to a reasonable limit will be justified.
(vi) In the case of Eastern Rice Syndicate v. Government of Pakistan, as reported in PLD 1959 SC 364, the apex Court has remarked that, "the powers of the customs authorities under section 39 (now section 32) can be fairly and correctly described, as a power to ruin a merchant over a single transaction involving the intervention of the customs authorities. Therefore, the necessary conclusion must be, that in the application of the laws which may culminate in the imposition of these enormous penalties, the authorities in question should act with complete fairness and the utmost circumspection, if their actions are not to have the effects detrimental to the maintenance and development of trade and to the wider interests.Of the public and the country".
(vii)One may further recall, that even in the absence of express words in the Statute, the honourable Supreme Court in Eastern Rice Syndicate v. Central Board of Revenue PLD 1959 SC 364, proceeded to hold that to attract the penalty under section 39 of the Customs Act, 1969 (now section 32 of the Customs Act, 1969), it was necessary to show, that the declaration made was false to the knowledge of the, petitioner. In the subsequent case of Pakistan v. Hardcastle Waud PLD 1967 SC 1, the basic principle was not overruled or deviated from, but it was held, that the Collector need not record specific finding to the effect, that the declaration was false to the knowledge of the declarant, but such fact could be inferred, where the duty payable was evaded.
The same view was substantially followed by the High Courts.
(viii)A Division Bench of the Sindh High Court accepted the contention of the petitioner and held that the petitioner was not treated alike with the other importers and he was discriminated without any justifiable reason. The court accordingly declared the imposition of personal penalty and the amount in excess of 50% in lieu of confiscation of the goods as being without lawful authority. (Reliance: Bijhama Traders v. Collector of Customs, as reported in 1989 MLD 4592).
(ix) At this juncture, I revert to the landmark decision by Lahore High Court, Lahore, authored by Nasim Sikander, Judge, in which several important points of custom law were settled. Further, it has been observed therein that an important function of the judicial system is to levy proportionate fines and penalties, commensurate with the gravity of the offence. Some of the factors, which may be taken into consideration while determining fines and penalties, are listed below:
(i) Discretion to be exercised properly and fairly,
(ii) Extenuating circumstances and bona fide conduct of the party are relevant factors.
(i.e) Redemption fine should not exceed the customs value of the confiscated goods.
(x) An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceeding and penalty will not ordinarily be imposed, unless the party either acted deliberately in defiance of the law, or is guilty of =contumacious or dishonest conduct, or acts in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose the penalty , when there is technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief, that the offender is not liable to act in the manner prescribed in the statute. In the instant case the learned adjudicating authority appears to have been swayed by the impression of the detecting agency that the appellant had been guilty of illegal removal of the impugned goods from the bonded warehouse without payment of duty and taxes leviable thereon. Even if that was correct, the appellant still needed to be dealt with in accordance with law and the pronouncement by the Superior Courts. We feel that a punishment disproportionate to the guilt is as much illegal as the act calling for the imposition.
19. Now, the question which arises is whether non-invoking of certain provisions of law would vitiate the proceedings? A construction company was penalized for the offence of unauthorisedly removing the goods from the bonded warehouse, without the payment of the customs duties, for which it was penalized. The Company challenged the imposition of the penalty, on the ground, that the penalty was imposed under section 156(1)(14) which did not apply in cases of unauthorized removals from the warehouses. The plea that the imposition of penalty was illegal for the mere reason, that a wrong section had been invoked by the customs was rejected.. It was held, that the customs authorities have the plenary powers to impose such penalty under section 111 of this Act for the unauthorized removal of the goods. Hence, merely .Quoting a wrong Section would not vitiate their order. It was further observed, that the petitioner had not shown, that any prejudice had been caused to them, as a result of citing a wrong Section, whilst there were other Sections which authorized the customs authorities, to impose the penalties in the like amount. (Reliance: National Construction Co. v. Government of Pakistan, as reported in PLD 1989 Kar. 174). A wrong citation of the Section cannot deprive the customs authorities of their jurisdiction, to impose the penalty and to recover the same, as they possess the plenary powers, in this behalf. The importer would have no cause for seeking the intervention of the higher forums, in cases, where no prejudice is shown to have been caused, on account of the citation of a wrong Section. The Tribunal/Court would only intervene, if it is shown, that the customs authorities were not at all competent to impose any penalty, on the petitioner, under any of the provisions of the Customs Act, for infringement of the conditions of the licence, of the bonded warehouse. (Reliance: National Construction Co. (Pakistan)
Limited v. Government of Pakistan, as reported in PTCL 1990 CL 217). We are thus, of the firm view that non-invoking of certain provisions of law in the proceedings (which otherwise are flawless) would not normally render it invalid. (Reliance: Mst. Baigan v. Abdul Hakeem 1982 SCM R IN 673).
20. The learned counsel for the appellant has contended that the wastage of RBD/Olien Oil as per provisions of the Customs Act, 1969, is not liable to any duties and taxes and the demand of duty on wastage is unjustified. Our study shows that the provisions of section 95 of the Customs Act, 1969 provide, that no duty of customs, shall be chargeable on the refuse or wastage produced, in the manufacturing bond, subject to the following conditions:--
(i) the whole or any part of the goods produced by such operations or process are exported.
Provisions have also been made, for the waiver of duty, in respect of such portion of the goods, as are converted into refuse or waste in the course of manufacture or processing, if final products are exported.
(ii) such waste or refuse is either destroyed or duty is paid on such waste or refuse, as if it had been imported into Pakistan in that form.
21. If, however, such products are cleared for home-consumption, the refuse, or, wastage will be subject to the normal duties and taxes, leviable on imports. The raison d'etre is that, the manufacturing costs always include the cost of wastage, caused due to the manufacturing operations. So, where the product is consumed in Pakistan, the waste produced in the manufacturing bond should not, even at the conceptual level, enjoy any exemption. We are, therefore, inclined to agree with the observation of the Collector (Appeals), as contained in para 9 of his Order-in-Appeal, dated 15-8-2007, that the wastage of RBD/Olien Oil has already been reassessed by the prosecution as pointed out during the course of adjudication proceedings and as clearly incorporated in para 11 of the impugned order-in-original, dated 12-3-2007.
22. The learned counsel for the appellant has contended that the physical stock taking exercise was carried out by the detecting agency behind the back of the appellant and as held by the Superior Court, no reliance can be placed on the evidence collected behind the back of the appellant. We are not convinced by such assertion of the learned counsel for the appellant and are inclined to agree with the observations of the Collector of Customs (Appeals), as contained in para 9 of his Order-inAppeal, dated 15-8-2007, that physical stock taking of raw-material, finished goods and waste was carried out in the presence of Messrs Sahibzada Sadaat Yar and Muhammad Jamil, who were the authorized representatives of the appellant and stock taking report was duly signed by them.
23. Our study shows that the third proviso to section 30 of the Customs Act, 1969, provides, that in case the goods are illegally removed from the warehouse, the rate of duty shall be the rate prevalent either on the date of in-bonding or detection of the case or the date of payment of the duty and taxes, whichever is higher. Now, the question which arises for consideration is whether an importer would be disentitled to claim concessionary S.R.O. For goods improperly removed from the warehouse? We revert to the case of Sindh Engineering (Pvt.) Ltd. v.
C.E.S.T.A.T. Karachi Bench, as reported in 2002 PTD 2556, wherein the Court has observed that an importer would be disentitled to claim the benefits of any concessionary S.R.O., where the goods are removed illegally i.e., without filing of a proper bill of entry (now GD) and payment of due taxes, thereon. In fact, an illegal removal attracts the provisions of sections 86, 97 and 104 of the Customs Act and further results in the forfeiture of all the concessions granted under section 19 ibid. Section 86 ibid further binds the importer to observe all the provisions of the Customs Act and the rules in respect of the warehoused goods. Section 97 ibid further provides, that no warehoused goods shall be taken out of any warehouse except on clearance for home consumption or export or for removal to another warehouse or as otherwise provided in the Customs Act. It is specifically provided in Section 104 ibid, that any owner of warehoused goods may clear the goods for home consumption by payment of the duty assessed on such goods under the provisions of the Customs Act. The customs authorities would thus, be justified to reject the plea of the appellant for .Contravention of law, on the purported ground that the removal from the warehouse was mistakenly done by their lower management, without their knowledge.
24. In view of the above deliberations on the factual and legal issues involved in this case, we are inclined to agree with the DR that the case of illegal removal of the impugned goods by the appellant from the bonded warehouse is established. We, therefore, direct that the leviable duty and taxes on the assessed customs value be recovered from the appellant. However, the imposition of heavy penalty is not justifiable and we order to reduce the same to 30% of the assessed customs value of the impugned goods. The impugned orders are thus, modified to the aforesaid extent only and the instant appeal thus, stands disposed of accordingly, in the aforesaid manner.
25. This judgment consists of twenty-eight (28) pages and each page bears the official seal and signature of the author of this judgment. Attested copy of the same be dispatched to the concerned parties within ten (10) days from today. .