GULAB SHAH AFRIDI, MEMBER (JUDICIAL).---This appeal filed by Messrs Venus Pakistan (Pvt.) Ltd., Islamabad (appellant here-in) is against the Order-in-Appeal No.103 of 2010 dated 6-12-2010, passed by the learned Collector Custom (Appeals), Rawalpindi.
2. Brief facts leading to this appeal are that during the course of audit of Messrs Attock Petroleum Ltd. Islamabad of the DTRE Approval No.STR/2300/2005-2008 dated 20-5-2008, it was observed that goods acquired under DTRE approval are being, consumed in exports, except 154, 748 liters of JP-8 export of which was not declared. This quantity was shown as lost during transit to Afghanistan. Now, it is the responsibility of Carrier to pay damages as well as duties and taxes involved in terms of rule 566 of Customs Rules, 2001 issued vide S.R.O. 450(1)/2001 dated 18-6-2001 amended vide S.R.O. 943(1)/2007 dated 14-9-2007. It is, therefore, proposed that an amount of Rs.2,576,772 (Sales Tax amounting to Rs.1,893,327, PDL amounting to Rs.683,535) along with additional tax and penalties should be recovered from the concerned carrier i.e. Mesrs Venus Pakistan (Pvt.) Ltd., in term of rules mentioned above'. The audit observation per se revealed the cause of exportation of the said oil as "was destroyed due to terrorist attacks, blast and accidents".
Hence, a Show Cause Notice C.No.V-Cus/ Adj/01/2010/38 dated 28-1-2010 was issued. Appellant submitted a reply to the show cause notice wherein it was submitted that out of four oil tankers, subject matter of the show cause notice, demand relating to one Oil Tanker TLG 239 was originated from National Refinery Karachi, hence, demand was without jurisdiction as neither the MCC Rawalpindi was its "Collectorate of Origination" nor "Collectorate of Clearance" as envisaged by the Customs Rules, 2001 (hereinafter be referred as "Rules") whereas the rest of the three vehicles in which oil under escort were destroyed en route in various promptly reported incidents whereof no negligence and mense rea could be attributed to the carrier, hence, it was contended that demand of duties and taxes from the Appellant Carrier on the oil destroyed en route ilk 566 ibid under the circumstances was not sustainable. Parties submitted para-were comments and rejoinder, however, the learned adjudicating authority vide Order-inOriginal No. 480 of 2009 dated 30-7-2009 directed the Appellant to pay the aforesaid amount along with additional tax. The order-in-original was upheld in first appeal, hence, this appeal.
3. In memo. Of Appeal, the impugned order is sought to be set aside on the following grounds:-- "(I) That as all the four consignments were being exported under DTRE by Messrs Attock Petroleum Ltd. And. Messrs National Refinery. To meet the audit observation, one of the DTRE holder Messrs Attock Petroleum Ltd., Islamabad vide letter dated 16-2-2009 approached the Federal Board of Revenue for granting special exemption under the relevant provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005 and the Board vide letter dated 4-3-2009 suggested that probably the said loss can be made good from the carrier under Rule 566 of S.R.O. 943(1)/2007 which observation, humbly submitted is highly misconceived.
(II) That reading, Rule 566 of S.R.O. 943(1)/2007 with DTRE Rules sub-chapter-VII of Customs Rules, 2001 would suggest that no such demand can be directed towards the Carrier. May it please be noted that the concerned exporter obtained the DTRE License on furnishing Corporate Guarantee to the licensing authority and it is the DTRE exporter who is to be primarily held accounted for duty free inputs that he had obtained under the Rules.
(III) That as far as Rule 566 is concerned, instead to be read in isolation, it is to be read with Rules 567, 307 and 307A of the Customs Rules, 2001. Attention is invited to sub-rule 2(d) of Rule 307A where such incidents have been protected as if by virtue of certain omissions and commissions and happening in natural due course, the goods as the instant case goods destroyed or lost their marketability, duties and taxes are liable to be remitted. WITHOUT PREJUDICE, it is humbly submitted that Rule 566 ibid of limited application which creates a liability on the Carrier only if en-route any tampering or pilferage or theft caused any damage to the goods. Therefore, WITHOUT PREJUDICE of the fact that whether it is a Carrier or the exporter who is liable, the fact remain the same that on the goods destroyed with the cause stated, duty and taxes cannot be demanded.
(IV) That reading of the aforesaid rules with the DTRE rules, it can be deduced that it is the exporter, holder of the DTRE, who is ultimately accountable to the competent authorities. As in the entire proceedings of exportation, it is the Collectorates of origination and clearance and the Exporter have to reconciliate the exports documents.
(V) That there is one instant which related to the carrier is that if in case en-route any lose due to tampering or pilferage or theft occurred only then carrier would be responsible. In the instant cases which have been duly reported to the local police, to the collectorate of origination and so as to the exporter, no cause exists as enumerated in the Rule 566.
(VI) That it is humbly submitted that the word "damage" used in Rule 566 ibid cannot be taken into isolation or clothed with its neutral meaning as it takes colour from its neighborhood such as the words "tampering" or "pilferage" or "theft", therefore, it would take such damage which caused by any of the aforesaid modalities or such cognatic expression as it a trite law that the meaning of doubtful words should be interpreted by reference to the meaning of the word associated with it.
Attention is invited to the judgment in case titled Messrs Crescent Sugar Mills v. CIT Lahore reported as 1981 PTD 43 and another judgment Messrs Kashmir Pottry Works reported as 1973 PTD 453.
(VII) That it is humbly submitted that it is a trite law that no provision of the statute can be read in isolation rather than to be taken as part of the whole scheme, therefore, any attempt of reading the Rule 566 in isolation would be violative of the law laid down by the honourable superior courts in cases 2002 PTD 804 (HC Karachi) and 2002 PTD 2169 (HC Karachi).
(VIII) That it is humbly submitted that Rule 566 has* the history behind its introduction, therefore, its historical reason may be taken as an and to construction of the Rule 566 as the law laid down by the honourable Karachi High Court in PLD 1979 Karachi 591.
(IX) That WITHOUT PREJUDICE to the, above, all the aforesaid rules quoted above have been made under section 219 of the Customs Act, 1969 for carrying out the purposes of the Act, therefore, being an agent under section 209 ibid, the replying, agent is not liable for the impugned demanded sales tax in view of the proviso to subsection (3) of section 209 ibid which reads as under:-- "Provided that where any duty is not levied or is short levied or erroneously refunded on account of any reasons other than wilful act , negligence or default of the agent, such duty shall not be recovered from the agent."
(X) That WITHOUT PREJUDICE to the above, many provisions of the parent law i.e. Of Customs Act, 1969 such as 108, 110 and 115 ibid authorize the competent Customs officers to remit the duty and taxes as in the instant case is where the POL products which were being exported under Bond when were destroyed.
(XI) That as the cause is accidental and under the relevant law is condonable, therefore, the carrier cannot has the right to ask the exporter for remission of duty and taxes on the spoiled consignment and it is the obligation of the exporter and that of the competent authority, if once arrived to the conclusion that the lost was caused by other than the specified instances to take up the matter with the customs authorities which authority humbly submitted is under legal obligation to order the remission of the duty and taxes.
(XII) That otherwise the loss caused by other than the specified causes in Rule 566, the loss may be made good in accordance with the DTRE.
(XIII) That Show Cause Notice is bad in law for non-joinder of the necessary parties i.e. Exporter/holder of DTRE Messrs Attock Petroleum and Messrs National Refinery. For this very deficiency, it is humbly submitted is not sustainable in the eyes of law.
(XIV) That WITHOUT PREJUDICE that section/clauses of law in the Show Cause Notice are not attracted at all to the cause involved. For instance no exemption was granted to the Appellant carrier rather it was granted to the holder of DTRE. Similarly the replying Appellant is a mere carrier, it has not caused any declaration what to say of any misdeclaration, therefore section 156(1)(10A)
(14) cannot be invoked against the replying appellant."
4. The respondent vehemently contraverted the contentions of the appellant. Respondent rejected the appellant plea that in absence of any mens rea or negligence on the part of the carrier, appellant carrier is not responsible for the loss of duties and taxes on goods en route to Afghanistan. Respondent emphasized that in Rule 566 of the Rules (S.R.O. 450(I)/2001 dated 18-6- 2001 as amended by S.R.O. 943(1)/2007 dated 14-9-2007), it is clearly mentioned that in case of any tempering or pilferage or theft or damage the carrier should be responsible for the duties and taxes on goods loss or reduction in value as a result of such damage.
5. Record perused. Parties heard. The liability impugned in appeal relates to four oil tankers bearing Registration No.TLG-239, TLG-105, C-1336 and GLT-8341. Out of four, it is an admitted fact that the consignment carried by TLG-239 originated from DTRE holder Messrs National Refinery Karachi. As per Rule 569 of the Rules, the adjudicating authority is neither of the "Collectorate of Origination" nor "Collectorate of Clearance" nor the than concerned "Collectorate of Sales Tax and Federal Excise", therefore, proceeding to the extent of TLG-239 is coram non-judice, thus, duty and taxes involved in that case is not recoverable at least by the Respondents of this appeal. My rest of the findings would be related to the three oil tankers which have been originated from Attock Petroleum Limited, Rawalpindi for export to Afghanistan. From the record, it has been found that the two vehicles C-1336 and GLT-8341 have been collided en route with each other at Brahma in which one Truck turned over and the other was partly damaged, the incident was reported in Police Station Wah Cant vide Roznamcha dated 19-6-2008. The Oil which was left, the drivers drove back and delivered the remaining Cargo to Messrs Attock Petroleum. It appears that Attock Petroleum has accepted the re-discharging without any objection. The incident was reported by the Appellant Carrier on 19-6-2008 vide Letter No. VPL/INT/C-1336/GLT-8341/Acc/19608 and sought cancellation of permits. Similarly, the Truck TLG-105 loaded on 27th August, 2008 from Attock Petroleum distant to Qandahar via Chaman. Border, the Truck was turned over in difficult terrain of District Pishin on 1st September, 2008. The incident was reported to the Police Station Yaro, Pishin and entered vide Roznamcha dated 1-9-2008. The driver and cleaner were also reported to be seriously injured. The incident was reported by the Appellant vide Letter No. VPL/AUG/TLG105/Rep01 dated 1-9-2008 for cancellation of permit. The independent Government licensed Surveyor confirmed both of the aforesaid incidents and losses of oil loaded in the three tankers. There is no objection on the part of the DTRE holder Messrs Attock Petroleum nor the factual aspect of the incident have been rebutted by the officials/respondents nor Police reported contrary to the narration of the incident as reported, hence, under the circumstances no mense rea could be attributed to the appellant which position is also appeared to have been conceded in the impugned order whereby the appellant have not been imposed a penny of penalty. Now under the circumstances the respondent plea that despite of absence of mense rea on the part of the appellant Carrier, they are under Rule 566 of Customs Rules, 2001 are absolutely liable for the duty and taxes on the oil destroyed en route to its destination irrespective of the cause of loss of oil, needs an in-depth consideration.
6. From the record, it transpires that Messrs Attock Petroleum is a DTRE holder under sub-Chapter- VII (Duty and Tax Remission For Exports - Rules 296 to 307H) of Chapter-XI' and sub-Rule (5) of Rule 307 of which specially provides that "POL meant for export to Afghanistan shall only be transported through carrier licensed under Chapter VIII (Customs Agent Licensing - Rules 90 to 106) of these rules read with Chapter XXII (Transport of POL products to Afghanistan - Rules 557 to 569) thereof'.
Prima facie, it appears that Rule 566 is a part of the whole scheme where the DTRE holder is importer of crude oil who after importation, export it as finished product to Afghanistan through a licensed Bonded Carrier as envisaged by Rule 307A(4) ibid in accordance with the provisions of Chapter XXII of Customs Rules, 2001 inserted vide S.R.O. 943(1)/2007 dated 14-9-2007. Under the rules, the bonded carrier shall be a Customs Agent, licensed under Chapter-VIII of the Rules ibid. Thus, wholistically the above rules put the DTRE Holder and Appellant Bonded Carrier into relationship of Principal and Agent, thus, under the principle of vicarious liability as embedded in Section 209 read with section 18 of the Customs Act, 1969 for liability, of duties and taxes it is the importer who as Principal is primarily liable, except where the agent willfully commits wrong as provided under subsection (3) of section 209 ibid quote verbatim:-- "(3) When any customs agent is expressly authorized by the principal to be his agent under subsection (1) of section 208 in respect of such goods for all or any of the purposes of this Act, such agent shall, without prejudice to the liability of the principal, be deemed to be the principal of such goods for such purposes: Provided that where any duty is not levied or is short-levied or erroneously refunded on account of any reason other than wilful act, negligence or default of the agent, such duty shall not be recovered from the agent."
7. From the above, it is crystal clear under the provisions of the Customs Act, 1969 without mense rea the Agent should not be exposed to the liability of duty for any wrong which he has not willfully committed though may cause losses in terms of duty and taxes to the exchequer. Thus, so far the conclusion is that Rule 566 ibid, being subordinate legislation, cannot be interpreted in a way that it may come in conflict with main provisions of the Customs Act, 1969. Now we have to look into whether duty and taxes are absolute liability even in case of goods loss, destroyed because of any unavoidable cause or incident/ accident are recoverable or remittable. It is worth to be noted that under provision of the Customs Act, 1969, the liability of duty and taxes are accrued as soon as the goods are imported into Pakistan. It remains dormant as long as the goods, subject to period of limitation envisaged under various provisions of the Act, remained in the customs area, port and bond. Liability of duty and taxes is discharged at the time of clearance for home consumption as provided under sections 79 and 80 of the Act or under section 104 at the time of ex bonding of warehoused goods. Liability of duty and taxes become obviated if the goods imported are exported out of Pakistan. In case goods removed clandestinely from the bond without payment of duty and taxes, the same may be recovered A on the premises that these escaped goods would have been put to human consumption. In case where duty and taxes are short levied or non levied due to inadvertence, error or misconstruction or due to some deliberate Act, section 32 empower the Customs Officer to recover the same. However, close scrutiny of the provision of the Act provides that liability of duties on goods damaged or destroyed in customs area or port or station or customs bond is liable to be remitted. To substantiate, an overview of the relevant provisions would be of great help. Starting with charging section 18 of Customs Act, 1969, subsection (1) of which is reproduced as under:-
18. Goods dutiable.---(1) Except as hereinafter provided, customs duties shall be levied at such rates as are prescribed in the First Schedule or under any other law for the time being in force on,-- -
(a) goods imported into Pakistan;
(b) goods brought from any foreign country to any customs station, and without payment' of duty there, transshipped or transported for, or thence carried to, and imported at any other customs station; and
(c) goods brought in bond from one customs station to another."
8. Section 27 of the Customs Act, 1969 provides abatement on damaged and deteriorated goods, subsection (1) is quote verbatim:-- "27. Abatement allowed on damaged or deteriorated goods.--(1) If before the examination of any imported goods the owner thereof informs an officer of Customs not below the'rank of Assistant Collector in writing that the value of the goods as declared in the goods declaration has diminished as a result of some damage or deterioration sustained by them before or during unloading at the port of destination, an officer of Customs not below the rank of Assistant Collector may appraise the value of the damaged or deteriorated goods in the manner given in subsection
(2) and the owner shall be allowed abatement of duty in proportion to the diminution of value so appraised, whether duty is leviable ad valorem or otherwise."
9. Similarly section 108 provides for reassessment of warehouse goods (which should include non- duty paid goods under control of DTRE holder) when damaged and deteriorated. Section 108 reads as under:-- "108. Reassessm ent of warehoused goods when damaged or deteriorated.---If any goods upon which duties are levied ad valorem or otherwise are damaged or deteriorated due to an unavoidable accident or cause after they have been entered for warehousing and assessed under section 80 and before they are cleared for home consumption, their value in the damaged or deteriorated state may be appraised according to either of the methods provided in subsection
(2) of section 27, if the owner so desires, by an officer of customs and the duty leviable thereon shall be diminished in proportion to the diminution of their value and a new bond for twice the amount of the diminished duty may, at the option of the owner, be executed by him to replace the bond originally executed."
10. On same line section 110 provides allowance in case of volatile goods. As in the instant case when tankers are damaged being volatile material loss due to leakage or evaporation is inescapable. Finally section 115 which empowers the customs authorities to remit duties on warehoused/bonded goods lost and destroyed. Section 115 reads:--
115. Power to remit duties on warehoused goods lost or destroyed.---If any warehoused goods in respect of which a bond has been executed under section 86 and which have not been cleared for home-consumption are lost or destroyed by unavoidable accident or cause, the Collector of Customs may in his discretion remit the duties due thereon: Provided that, if any such goods be so lost or destroyed in a warehouse, notice thereof be given to the appropriate officer within forty-eight hours of such loss or destruction.
11. Thus reading sections 18, 21, 27, 108, 110, 115 read with sections 121, 122 and 123 of the Act, duties and taxes are liable to be abated or remitted in case of goods destroyed because of natural decay, unavoidable incident, accident occurred beyond the control of possessor, protector of the goods as the case of the Appellant is. The principle has been inbuilt in the DTRE Rules, for instance Clause
(d) of sub-rule (2) of 307A which provides that subject to approval, duties on such goods which no longer remains fit for home consumption or sale, be remitted. Now on the basis of aforesaid broad base principle embedded in the aforesaid provision of law, the sub-ordinate legislation Rule 566 needs reappraisal to determine that whether cause of the Show-Cause Notice falls within the mischief of Rule 566 ibid or not. Rule per se reads as under:-- "566. Break down or accident en route.---(1) In case of any tampering or pilferage or theft or damage caused en route, the carrier shall inform the Collectorate of Origination for necessary orders within three days thereof. The carrier shall be responsible for the duties and taxes and loss or reduction in value as a result of such damage notwithstanding any other action which may be - taken under the law and the rules made thereunder.
The carrier shall bear all the expenses incurred on restuffing or weighing of the g ods."
12. Rule 566 creates liability upon the carrier in case of [i] tempering or [ii] pilferage or [i.e] theft or
[iv] damage caused en route. Prima facie, the instant cause is neither of tampering nor of the pilferage nor of theft nor any damage which is caused with criminal intent. It is noticeable that the three enumerated acts i.e. Tampering, pilferage, or theft preceding to the word "damage" are well defined criminal offences punishable under sections 378, 379 and 489 ibid etc. Of Pakistan Penal Code, 1860. Thus, the question is whether the word damage in Rule 566 can be given limited meaning i.e. Include those damage which are caused with the criminal intent or unlimited meaning. For which guidance can be taken from the frequently used canon noscitur a sociis literally, "it is known by its companions" that is the word take color from its neighbourhood. This principle has also been recognized and adopted by the superior courts of Pakistan. In Special Reference No.1 of 1957 reported as PLD 1957 SC 219, their Lordships of the Supreme Court. Has held that "The best mode of ascertaining the meaning affixed to any word or sentence by a deliberative body is by comparing it with the words and sentences with which it stands connected, and a constitutional provision or a phrase in a constitutional must be read in connection with the context.
Noscitur a sociis is .The rule of construction_ applied to all written instruments." Similarly Sindh High Court in its judgment reported as PLD 1993 Karachi 656, relying on the principle noscitur a sociis, besides holding that "In our opinion since the word 'misbehaviour' has been used in the company of the words 'smuggling' and 'theft', it must also take its colour from the said words." has also held that "Consequently, since the word 'misbehaviour' has been used in section 43-B along with the words smuggling and theft, it implies misbehavior of serious nature, analogous to smuggling or theft. The use of words 'or such other offence' by the legislature along with the words 'smuggling', 'theft' and 'misbehaviour' in section 43-B is further indicative of the fact that misbehaviour for which a seaman can be punished must also amount to an offence" It this principle is applied it would suggest the Appellant carrier cannot be held for any act which caused damage but not committed with criminal intent. Notice be taken of the fact that word "damage" has been used in a row with offences to be committed with criminal intent, hence, the word "damage" used in Rule 566 include any damage which is committed with criminal intent or Criminal negligence, however, any damage which is caused because of unavoidable cause or accident may not be brought within the mischief of Rule 566 ibid. This meaning is obvious and even evident intrinsically: In first sentence of Rule 566 the three or four acts i.e. "tempering", "pilferage", "theft" or "damage" have been collectively grouped and called as "damage" used in the second sentence of the Rule, thus, in vie/ of above word "damage" cannot be given extensive meaning. Even if Rule 566 is to read or interpreted as subservient to the main statute, again the scope of word damage is limited to the damage caused with wilful act, carried out with criminal intent and negligence. This interpretation is justified from main statute i.e. Customs Act, 1969 the provisions of which as cited above in such circumstances provides abatement/remission of duty and taxes. In this regard guidance can be taken from the Lahore High Court judgment in case titled CBR v. Messrs Tripple Em (Pvt.) Ltd.
Reported as 2005 PTD 1806 wherein the honourable High Court in para 7 has held that "Though section 115 of the Customs Act, 1969, empowers the Collector to remit duty of warehoused goods which has been lost or destroyed yet in view of the damage on account of refusal of facility of the bonding, the Collector recommended the case of the respondent to D.R. Who was amply empowered to direct refund of duties/taxes charged on account of lapse on the part of the Department but it being obvious of his these powers, erroneously refused the recommended prayer." Such are the circumstances which are the subject issue of the instant appeal. Reliance is placed on Messrs Crescent Sugar Mills v. CIT Lahore reported as 1981 PTD 43, Messrs Kashmir Pottery Works reported as 1973 PTD 453, 2002 PTD 804 (H.C. Kar.) and 2002 PTD 2169 (HC Karachi), PLD 1979 Karachi 591 wherein it has been held that "Law is to be interpreted in the totality of the scheme contained in a particular statue and is not to be taken in isolation". Thus Rule 566 cannot be read in isolation as it is part of the whole of Customs Rules, 2001 and Customs Act, 1969.
13. Here it is worth to mention that Customs Act, 1969 has prime Rule that duty and taxes are paid when goods are cleared for home consumption and recovery proceedings are initiated in case where goods are removed for home consumption either without payment of duty or less of leviable duty and taxes whereas in the instant case it is admitted position goods lost have been destroyed and thus could not been put to human consumption and these have been destroyed in unavoidable accidents. The expression "Unavoidable accident" is defined in Black's Law Dictionary as "An inevitable accident; one which could not have been fore-seen and prevented by using ordinary diligence, and resulting without fault. Not necessarily an accident which it was physically impossible, in the nature of things, for the person to have prevented, but one not occasioned in any degree, either remotely or directly, by the want of such care or skill as the law holds every man bound to exercise. An accident which could not be prevented by the exercise of ordinary care and prudence. A casualty which occurs without negligence of either party and when all means which common prudence suggests have been used to prevent it". The Black's Law dictionary further defines the expression "Unavoidable cause" as "A cause which reasonably prudent and careful men under like circumstances do not and would not ordinary anticipate, and whose effects, under similar circumstances, they do not and would not ordinarily avoid." As the provisions of the Customs Act, 1969 per se do not envisage to recover duty and taxes on goods proven to be destroyed in unavoidable accidents such is the case of the instant appeal or fire or act of terrorism etc. Thus, under the circumstances, where even the principal importer or exporter cannot be held liable, the recovery of duties and taxes cannot be allowed from the Appellant Agent. Here, it is worth to mention that show cause is bad in law for non-joinder of the DTRE holder for which reason, the entire proceeding become defective, however, proceeding against them have been condoned on the basis of the F.B.R. Letter C. No. 1(6)CEB/93-Pt/33748-R dated 4-3-2009. Hence, for the reasons, this appeal succeeds and impugned order is set aside. .