KHALID MAHMOOD, MEMBER TECHNICAL-I.--- This order disposes of Customs Appeal No.K-845/2013 directed against Order-in-Original No.376 of 2012-13 dated 28-5-2013 passed by the Additional Collector of Customs (Adjudication-I), Karachi.
2. Brief facts of the case are that the appellants imported 10 consignments of Black Tea without payment of value addition sales leviable in terms of special procedure notified vide Chapter X of Sales Tax Act, 1990. They also availed of consequent concession of payment of income ta The goods were imported vide the GD Nos. (i) HC- 29827 dated 21.09.201 1 (ii) HC 61213 dated 15.12.201 1 (iii) HC-65022 dated 26.12.201 1 (iv) HC-70196 dated 03.01.2012 (v) HC-76756 dated 17.01.2012 (vi) HC-81525 dated 26.01.2012 (vii) HC-82333 dated 28.01.2012 (viii)
HC-89497 dated 16.02.2012 (ix) HC-89499 dated 16.02.2012 (x) HC-I-101 141 dated 20.03.2012 (xi) HC-1 10284 dated 10.04.2012 and (xii) HC-26408 dated 29.08.2012. The Regional Tax Office, Enforcement and Compliance-I, Regional Tax Office, Peshawar vide their letter No. E&C-I/Zone-I/217 dated 10.08.2012 confirmed that the appellants were importers of finished product of tea and not of raw material; hence the value addition sales tax was applicable to the above mentioned consig nments imported by them. The non-pay ment of value addition sales tax and short payment of income tax was considered a willful act on the part of appellants and clearing agents with mala fide intention to deprive the government of its legitimate revenue amounting to Rs.1,695,525/-
3. The learned Additional Collector of Customs (Adjudication-I), Karachi passed an Order-in-Original No.376/2012- 13 dated 28.05.2013, as under:-- In view of the forgoing discussion and the available record it is observed that the letter from Deputy Commissioner , IR, is on record conveying that the respo ndents do not have the relevant manufacturing facility at their premises therefore exemption from Income Tax may not be allowed to them without the Exemption Certificate. The fact highlighted by the Deputy Commissioner , IR, shows that the respondents do not have relevant facilities for tea as such. This report is based on the physical inspection of the premises of the importer , therefore exemption of Value Addition Sales Tax and consequent Income Tax on the imported quality of tea cannot be allowed to them. I therefore hold that the Value Addition Sales Tax and consequent Income Tax was leviable on the imported goods in terms of Rules 58(A) and 58(8) of the Sales Tax Special Procedures Rules, 2007 vide S.R.O. 480(1)/2007 as amended vide S.R.O. 525(1)/2008 dated 11.06.2008 further read with Sections 148 and 161(2). The value Addition Tax, and consequent Income Tax applica ble at the import stage, was not paid by the importer which resulted into loss of government revenue 1,695,525/-(V alue addition Tax Rs.991,388/- and Income Tax Rs.704,137/-). I therefore order for recovery of short paid amount of Rs.1,695,525/- along with default surcharge in terms of subsections (3)
(4) of Section 32 of the Customs Act, 1969 read with Sections 34 and 36 of Sales Tax Act, 1969, and Sections 148 and 161(2) of Income Tax Ordinance, 2001."
4. Aggrieved, the appellants filed this appeal before this Tribunal raising the following grounds:- "Whether the Asstt. Collector of Customs (Adj.) Custom House, Karachi was competent to issue demand cum show cause notice in terms of section 179 of the Customs Act, 1969, read with Section 156(1) (14) and (14A) of the Customs Act, 1969?
(i) Under subsection (1) of section 179 of the Customs Act, 1969, the jurisdiction and powers of the officers of customs in terms of amount of duties and other taxes have been prescribed.
(ii) under clause (iv) of subsection (1) of section 179 of the Customs Act, 1969, the Asstt. Collector of Customs does have the jurisdiction and powers to adjudicate the matter in respect of the goods involving duty and taxes not exceeding three hundred thousand only .
(iii) the duty and taxes involved in the present case as shown in para3 of the show cause notice are Rs.16,95,525/- (value addition sales tax Rs.991388/- and Income Tax Rs.7,04,137/-) which exceeded the monetary limit of the Asstt. Collector of Customs (Adj), Customs House, Karachi.
(iv) reliance is placed on case law reported as 2010-PTD(T rib.) 472 in which it has been held as under:-- "Section 179(1) pecuniary jurisdiction of customs officers prescribed in section 179 (1) of the Customs Act, 1969 scope Any transgression of such jurisdicti on for not being a technical defect render entire exercise of authority to be void ab-initio and illegal".
(The same principle has been adopted 2006-PTD-534 + 2006 PTD-2177 and 2009 PTD 642 ).
Whether the Asstt, Collector of Customs (Adj) customs House Karachi was competent to issue demand cum show- cause-notice under subsection (3) of section 32 of the Customs Act, 1969? Reply in this regard is also in negative because;
(i) under subsection (4) of section 32 of the Customs Act, 1969, it has been provided that the appropriate officer, after considering the representation, if any, of such persons as is referred to in subsection (2) or subsection (3) shall determine any amount payable by him under this Act.
(ii) under a Notification No. S.R.O. 371(1)/2002 dated 15.6.2002, the functions of appropriate officers of customs within the meaning of clause (b) of section 2 of the Customs Act, 1969 have been specified.
(iii) under sub-serial No. (ii) of S.No. 3 of the Table to the above notification the functions of appropriate officer of customs under subsection (3) of section 32 of the Customs Act 1969 have been assigned and not the Asstt.
Collector of customs or any of ficer higher in rank to him/her .
(iv) the assumption of jurisdiction and powers of the Superintendent/ Principal Appraiser by the Asstt. Collector of customs (Adj) customs House Karachi or to issue show-cause notice under the said provisions of laws was, therefore not covered under subsection (4) of section 32 of the Customs Act, 1969 read with the said notification.
(v) reliance is placed on case law reported as 2003 PTD (T rib.) 1857 in which it has been held as under; "section 2(b)---to become the appropriate officers of customs under section 2(b), the officers of customs as defined under section 3 have to be assigned the functions for which they are appropriate of ficers". reliance is also placed on case law reported as 2005 PTD 1069 Sindh HC in which it has been held as under;"section 2(b)-Additional Collector of customs in the appropriate officers for the purposes of section 25-A- Principal Appraiser is not an appropriate officer and has no jurisdiction to issue notice under section 25-A. Any action on the basis of such notice is illegal and without lawful authority . Whether the Additional Collector of customs
(Adj) custom House Karachi was competent to assume jurisdiction and powers of a case under section 32(3) of the Customs Act, 1969 or section 179 (1) ibid on the basis of a show-cause-notice issued by the Asstt. Collector of customs (Adj) Custom House Karachi? Reply to the said question is also in negative:--
(i) the Additional of Customs (Adj) customs House Karachi never disclosed in the impugned order-in-original passed by him the reasons and grounds by virtue of which he assumed the power s of subsection (3) of section 32 of the Customs Act, 1969 or section 179(1) ibid.
(ii) the Additional Collector of customs (Adj) Customs House Karachi was not an appropriate officer of customs in terms of subsection (4) of section 32 of the Customs Act, 1969 read with afore-mentioned Notification No. S.R.O.
371(1)/2002 dated 15.6.2002.
(iii) the Additional Collector of customs (Adj) Customs House Karachi was not competent to adjudicate the case in terms of section 179(1) of the Customs Act, 1969 unless a proper showcause-notice within the meaning of section 180 of the Customs Act ,1969 was issued by him.
(iv) reliance is placed on case law reported as 2010 PTD (T rib.) 2086 in which it has been held as under; "section 179-Power of jurisdiction---Asstt . Collector or the Additional collector---Authorities of issuance of show- causenotice/corrigendum of Collector or Additional Collector--validity---In view of admitted position of monetary limit the jurisdiction could only be exercised by the custom officers according to language of section 179 of the Customs Act, 1969 and no deviation could be made on one or any other pretext and if the action had been taken or order had been passed without having the competency as given under section 179 of the Customs Act, 1969, the same could be declared illegal, unlawful and without jurisdiction".
Whether the Additional Collector of Customs (Adj) Customs House Karachi was competent to assume jurisdiction and powers in terms of subsection (3) of section 32 of the Customs Act, 1969? Reply in this regard is in negative because;
(i) under subsection (4) of section 32 of the Customs Act, 1969, it has been provided that the appropriate officer, after considering the representation, if any, of such persons as is referred to in subsection (2) or subsection (3) shall determine any amount payable by him under this Act.
(ii) under a notification No. S.R.O. 371(1)/2002 dated 15.6.2002, the functions of appropriate officers of customs within the meaning of clause (b) of section 2 of the Customs Act, 1969 have been specified.
(iii) under sub-serial No. (ii) of S.No. 3 of the Table to the above notification, the functions of appropriate officer of customs under subsection (3) of section 32 of the Customs Act, 1969 have been assigned to the Superintendent/Principal Appraiser and not the Additional Collector of customs or any officer higher in rank to him/her .
(iv) the assumption of jurisdiction and powers of the Superintendent/ Principal Appraiser by the Additional Collector
(Adj) Customs House Karachi was, there fore, not covered under subsection (4) of section 32 of the Customs Act 1969 read with the said Notification.
(v) reliance is placed on case law reported as 2009 PTD (T rib.) 500 in which it has been held as under; "Action initiated by adjudicating authorities, without contravention reports or all action initiated to adjudication authorities upon contravention repots given by officers below the rank of Collector would be completely coram non judice and void".
Whether the Asstt. Collector of customs (Adj) could assume the jurisdiction and issue demand cum show-cause- notice in pursuance of a letter C.No. E & C-1/zone C-1/2.17 dated 10.8.2012 issued by the Deputy Commissioner Income Tax Regional Tax Office Peshawar and initiate proceedings in pursuance of the said letter retrospectively in respect of the past and closed transactions ? Reply on this score is i.50 in negative because:--
(i) the above said letter was issued by an authority who was not competent to issue such clarification under section 159(1)(b) of the Income Tax Ordinance, 2001.
(ii) the contents of the above-said letter were misleading as TAPAL and LIPT ON were also having the same process of mixing, packing and re-packing however on higher scale.
(iii) TAPAL and LIPT ON were also importing the identical goods from the same countries from where the Appellant had imported these goods.
(iv) TAPAL and LIPT ON were never importing "Leafs" instead they were also importing the identical and similar goods of the same description.
(v) tea could not be termed as "finished goods" when imported by the Appellants if it was termed as "raw-material" when imported by other contemporary importers.
(vi) cause of action had arisen at Regional Tax Office Peshawar and not at Customs House Karachi and as such the Asstt. Collector of Customs did not have the jurisdiction to initiate proceedings at Customs House Karachi.
(vii) as per section 24 of the General Clauses Act every insertion,replacement or amendment runs prospectively and not retrospectively . Whether the Asstt. Collector of Customs (Adj) Customs House Karachi was competent to initiate proceedings for recovery of value addition sales tax under subsection (3) of section 32 of the Customs Act, 1969 or subsection (1) of section 179 of the Customs Act 1969? Reply to this account is also in negative because;
(i) subsection (3) of section 32 of the Customs Act, 1969, inter alia, provides to have jurisdiction of the appropriate officer of customs where "duty or charge" has not been levied or short levied.
(ii) the words "duty or charge" do not cover "value addition sales tax"
(iii) the customs functionaries could "collect" the value addition sales tax at the time of importation of goods but they are not authorized to "recover" the same as they are not the appropriate officers of Sales Tax to recover the same under the said section of law ,
(iv) the Asstt. Collector of customs (Adj) Customs House Karachi is not appropriate officer of customs within the meaning of subsection (2) of section 2 of the Sales Tax Act, 1990 as no notification exists whereby he could be notified as appropriate officer of Sales Tax and could function as an appropriate officer of Sales Tax to recover the same under the provisions of Sales Tax Act, 1990.
(v) only officers of the Inland Revenue authorities by the Board by notification in the official gazette can perform certain functions under the Sales Tax Act, 1990.
(vi) the relevant provision of law for the recovery of sales tax not levied or short-le vied or erroneously refunded is section 36 of the Sales Tax Act 1990 and any proceedings for such recovery are to be initiated under section 36 of the Sales Tax Act, 1990 and not section 32 of the Customs Act, 1969.
(vii) no specific grounds as to whether or not it was collusions, inadvertence, error or misconstruction has been mentioned in the show-cause-notice.
(viii)failure on the part of authority for non-mentioning the specific grounds in the show-cause notice tantamounts the said showcause-notice defective and invalid.
(ix) reliance is placed on case law reported as 2003 PTD 1797 in which it has been held as under; "Failure on the part of authority for non-mentioning the grounds available' for issuance of show-cause-notice under section 36 (1) (2) would render the show-cause-notice invalid and illegal."
Whether under the provisions of sections 6 and 7A(2) of the Sales Tax Act, 1990 read with Rules 58 (A) and 58 (B) of the Sales Tax Act, 1990 Special Procedures Rules, 2007 issued vide Notification No. S.R.O. 480(1)/ 2007 dated 9.6.2007 as amended vide Notification No. S.R.O. 525(1)/2008 dated 11.6.2008, enforced in the demand cum show-causenotice were relevant and the Asstt. Collector of customs (Adj) was competent to issue demand cum show-cause-notice and the Addl. Collector of Customs (Adj) was competent to adjudicate the matter under the said provisions of law and rules made thereunder? The reply to this ef fect is also in negative because:--
(i) section 7A(2) is not a penal or charging section instead it empowers the Federa l Govt. To specify the minimum value addition required to be decided by certain persons or categories of persons for supply of goods of such description or class as may be prescribed and to waive the requirement of audit or scrutiny of records if such minimum value addition is declared
(ii) it was not a case of supply of goods at the relevant time of filing Goods Declarations instead it was a case of importation of goods for which proper Goods Declarations were filed.
(iii) even otherwise the Asstt. Collector (Adj) has failed to enforce the applicable penal section of 7A(2) which renders the show cause-notice defective and not sustainable. Whether under the provisions of sections 148 and 161(2) of the Income Tax Ordinance, 2001, as mentioned in the demand cum show-cause notice under reference, the Asstt. Collector (Adj) customs House Karachi or even Addl. Collector of customs (Adj) Customs House Karachi were competent to determine and recover the Advance Income Tax? The answer is negative because:--
(i) section 148 of the Income Tax Ordinance is charging section of law ..
(ii) it empowers the Collector of customs to "collect" advance income tax from every importer of goods on the value of goods at the rate specified in the First Schedule.
(iii) it does not empower the customs functionaries within the hierarchy of customs department to "recover" the same if not collected at the time of import stage.
(iv) exemption in the present case from payment of advance income tax was claimed on the exemption/clarification certificate issued by the Inland Revenue Authorities at Regional Tax Office Peshawar which exemption/clarification certificate was never found false or untrue as a result of subsequent examination and scrutiny of the Goods Declarations so filed by the Appellants for the clearance of imported goods.
(v) advance income tax could not be recovered under subsection (3) of section 32 of the Customs Act, 1969 nor provisions of clause (14) or (14 A) of subsection 156(1) of the Customs Act, 1969 were attractable.
(vi) the Asstt. Collector customs House Karachi has misconceived, misconstrued and misinterpreted the provisions of section 161(2) of the Income Tax Ordinance, 2001 as the said section of law envisages that a person personally liable for an amount of tax under subsection (1) as a result of failing to collect or deduct the tax is entitled to recover the tax from the person from whom the tax should have been collected.
(vii) subsection (ii) of section 161 of the Income Tax Ordinance, 2001 deals with the failure to pay tax collected or deducted. It does not deal with the recovery of advance tax by the Collector of Customs.
(viii)the word "person" has been defined under subsection (42) of section 2 of the Income Tax Ordinance and further defined under section 80 of the Income Tax Ordinance, 2001 and a plain reading of section 80 of the Income Tax Ordinance, 2001 would reveal that the Collector of customs does not figure in the said definition.
(ix) subsection (i) of section 161 of the Income Tax Ordinance 2001 empowers the Commissioner of Income Tax to pass an order regarding payment of tax and proceed to recover the same.
(x) subsection (1) of section 162 of the Income Tax Ordinance, 2001 provides that where a person fails to collect tax as required under Divisions-II of this part on chapter xii or deduct tax from a payment as required under Division-III of this part or chapter xii, the Commissioner is the competent authority to pass an order to that effect and recover the amount not collected or deducted from the person from whom the tax should have been collected or to whom the payment was due.
(xi) reliance is placed on case law reported as 2011 PTD (T rib.) 1 10 in which it has been held as under; "sections 32 and 179---Customs department was not authorized to determine, adjudicate, demand or recover the amount of advance income tax short levied, if any, by him, he only could inform the concerned Commissioner of Income Tax about such non-levy/short levy"
Whether the impugned order-in-original was passed within the stipulated period of time or was barred by limitation in terms of subsection (3) of section 179 of the Customs Act, 1969? The answer is obviously in negative because:--
(i) demand cum show-cause-notice was issued on 1.10.1012 and the impugned order-in-original was passed on 28.5.2013 after the expiry of 7 months and 27 days.
(ii) subsection (3) of section 179 of the Customs Act, 1969 provides that the cases shall be decided within one hundred and twenty days of the issuance of show-cause-notice or within such period extended by the Collector for which reasons shall be recorded in writing but such extended period shall, in no case exceed sixty days.
(iii) proviso under subsection (3) of section 179 of the Customs Act, 1969 further provides that any period taken through adjournment by the petitioner not exceeding thirty days shall be excluded for the computation of the afore- said periods.
(iv) in case the initial period of one hundred and twenty days is added to extended period of two months and then period of one month taken by the petitioner is included, the total period as a whole comes to 7 months though no such evidence is available on record, whereas the impugned order-in-original has been passed after 7 months and 27 days and as such is beyond the prescribed time limit as envisaged under subsection (3) of section 179 of the Customs Act, 1969.
(v) reliance is placed on case law reported as 201 1 PTD (T rib..) 1 10 in which it has been held as under:-- section 179- show-cause-notice issued on 21.2.2008 was to be adjudicated within a period of 90 days under section 179(3) which expired on 21.5.2008, there was no extension by the Collector , final hearing as per order in original was 10.5.2008, the order was made on 17.8.2008 and issued on 19.9.2008, it was manifestly time barred."
[The same principle has been adopted in case laws reported as 2002 MLD 180, + 2003 PTD 1354 + 2003 PTD (Trib.) 1361 + 2003 PTD 1797 , + 2006 PTD 340, + PTCL 2003 CL 841 (sic) (President of Pakistan) 2007 SCMR 95, 2007 PTD 1495 + 2008 PTD 60 and 2009 PTD 762 + 2009 PTD 204 + 2010 PTD (T rib.) 324 ].
Whether the impugned order-in-original passed by the Additional Collector (Adj) Customs House Karachi is speaking, judicious and based on sound reasoning and grounds? Reply is in negative because:--
(i) Additional Collector of Customs (Adj) Customs House Karachi has not examined all the evidences produced to him particularly the following;
(a) clarification regarding applicability of tax rate under section 148 of the Income Tax Ordinance, 2001 for importer- cummanufacturer issued by Revenue Regional Commissioner Inland Revenue Regional Tax Office Peshawar vide letter C.No. DCIR/E & C-01/R TO-PR/2010-1 1/35 dated 30.7.2010 in favor of the Appellants.
(b) clarification regarding applicability of tax rate under section 148 of the Income Tax Ordinance, 2001 for importer- cum manufacturer issued by the Deputy Commissioner Regional Tax Office Pesha war vide letter C.No.DCIR/E&C- 01/R TO-PR/2010- 1 1/660 dated 23.5.201 1 in favor of the Appellants.
(c) exemption certificate No. 52 under section 148 of the Income Tax Ordinance, 2001 issued in favor of Messrs SPATCO Karachi vide C.No.Jud-1/CIT /ZB/2006-07/318 dated 15.7.2006 who also import black tea and identical/similar process is adopted for mixing, packing, and re-packing etc as is being adopted by the Appellants.
(d) exemption certificate No. 03 under section 159(1)(b) of the Income Tax Ordinance, 2001 issued in favor of M/s. Decent Enterprises Karachi by the Commissioner Inland Revenue, Karachi vide C. No. CIR/Zone/l/R TO/III/201 1 -2012/10 dated 30.6.2012 who also import Black tea and are adopting the identical/similar process of mixing, packing and repacking etc as has been adopted by the appellants.
(e) exemption certificate No.2 under section 159 (1) (b) of the Income Tax Ordinance, 2001 issued in favor of Messrs Kohistan Tea & Co. Karachi by the Commissioner of Inland Revenue Karachi vide C.No. CIR/Zone- 1/RTO/III/exemption certificate/ 2012/149 dated 31.7.2012 who also import black tea and are adopting the identical/similar process of mixing, packing and repacking etc as is being adopted by the Appellants.
(t) during the course of hearing, we also provided him printed packing/repacking material which invariably contain the brands of tea and spices being manufactured by the Appellants and CDs of the contemporary importers of black tea were also provided to him.
(g) during the course of hearing, we also provided him the inquiry report by the Inspector Income Tax Regional Tax office Peshawar who has confirmed therein that the appellants imported black tea from various countries and repacked in different packs i.e. 100 grams, 250 grams, 500 grams and one kg. He has further confirmed that for the packing process, three mixing machines have been installed where the black tea is re-mixed with the particular ratio.
(ii) the adjudicating officer did not consider the fact that discriminatory attitude was extended to the Appellants which was violative of Articles 4 and 25 of the Constitution as the Appellants as well as contemporary importers were also importing black tea and their process was at par to tot who were granted exemption certificate by the functionaries of Income Tax department.
(iii) the adjudicating officer ignored the provisions and definitions as enshrined in sections 2(16) and 2(17) of the Sales Tax Act, 1990 under which the words "manufacture", " produce" and "manufacturer" and "producer" have been defined and the case of the Appellants did fall under the said definitions.
(iv) the adjudicating officer also ignored the provisions of subsection 9(g) of section 153 of Income Tax Ordinance, 2001 under which the word "manufacture r" for the purpose of section 153 of the Income Tax Ordinance, 2001 had been defined and the case of the Appellant also did fall under the said definition but he formed a different opinion which was not supported by any of the provisions under Sales Tax Act, 1990 and Income Tax Ordinance, 2001.
(v) the adjudicating officer also ignored the fact highlighted to him during the course of hearing that clarification dated 10.8.2012 (copy already annexed) issued by the Deputy Commissioner Income Tax namely Muhammad Nawaz which was made basis for the issuance of show-cause notice was the same officer who had earlier issued clarification dated 30.7.201 1 (copy already annexed) in favor of the Appellants and such clarification affecting the vested rights of the Appellants had no legal sanctity .
(vi) the adjudicating authority also ignored the fact that clarification issued on 10.8.2012 by the Deputy Commissioner of Income Tax though not supported with any of the provisions of the Income Tax Ordinance, 2001 could not be made applicable from the retrospective ef fect.
(vii) to support our contention, he was provided copies of para-74 of the Customs General Order 12/2012 dated 15.6.2012 in which it was clarified that the change in practice will not have retrospective effect but will be applicable from the date of the ruling but he ignored this aspect also.
(viii) he ignored the case-laws which were supporting the case cited as 2011 PTD (Trib.) 110, 2011 PTD (Trib.) 79, 2003 PTD 2821 , 2006 PTD 2237 , 2008 PTD 1968 , 2001 SCMR 838, 2003 PTD 2090 and 2009 PTD (Trib.) 1926 which were provided to him during the course of hearing. He did not bother to examine and discuss even single judgment and decided the case against the appellants pushing aside all these case-laws just to favour the department in a slip shod manner .
(ix) reliance is placed on case-law reported as 2012 PTD (T rib.) 1650 in which it has been held as under; "Articles 4 and 25---while ignoring evidence of identical and similar imports of goods in question, the customs authorities have discriminated by way of preparation of contravention report and subsequently passing of order-in- original amounts-to discriminate which is hit by Articles 4 and 25 of the Constitution".
(ix) reliance is also placed on 2005 PTD (T rib.) 135 in which it has been held as under; "section 179 ----the order which is not a speaking order and devoid of reason is not sustainable in law being in contravention of law. (The same principle has been adopted in PLD-1959-SC (Pak) 2721, PLD-1970-SC-158 , PLD- 1970 SC-173 and 1914 (sic) + SCMR-10141 (sic) etc.
(xi) That, the adjudication officer also ignored the fact highlighted to him during the course of hearing that clarification letter No. E&C-I/Zone-I/217 dated 10.08.2012 issued by Deputy Commissioner Income Tax which was made basis for the issuance of show cause notice was set aside by the Chief Commissioner Inland Revenue RTO Peshawar while entitling the appellant for the facility of law rate tax deduction vide order No.463 dated 07.05.2013.
In view of the forging, it is humbly prayed that the impugned order-in-original may kindly be declared as unlawful and void ab initio and may graciously be set aside.
5. The case has been heard and examined. The questions that emanate are (i) whether the appellants possessed necessary 'manufacturing' facility to be entitled to the exemption from payment of 3% value addition sales tax imposed under Sales Tax Special Proced ures A Rules, 2007, and the consequent concessionary rate of income tax? And (ii) whether the respondent had the lawful authority vested in it to recover short levied sales tax and income tax under the law?.
6. Coming to the question regarding appellants' capability to carry out manufacturin g, it would be in order to refer to the observation made by the Adjudicating Of ficer in para-9 of the impugned order-in-original, which reads:-- "It is observed that the letter from Deputy Commissioner , IR, is on record convey ing that the respondents do not have the relevant manufacturing facility at their premises therefore exemption from Income Tax may not be allowed to them without the Exemption Certificate. The fact highlighted by the Deputy Commissioner , IR, shows that the respondents do not have relevant facilitie s for tea as such. This report is based on the physical inspection of the premises of the importer , therefore exemption of Value Addition Sales Tax and consequent Income Tax on the imported quality of tea cannot be allowed to them."
7. The letter dated 10.08.2012 of the Deputy Commissioner , IR whereupon the above observation of the Adjudicating Officer is based, inter alia, reads (i) "During the visit of this office inspector , no process like that of TAPAL and LIPT ON was observed at any stage can be termed as manufacturing (ii) No process of manufacturing is involved except manual mixing of high and low quality tea".
8. In order to find how the term "manufacture" or "produce" is defined in Sales Tax Act, 1990, perusal of the definition provided under subsection (16) of Section-2 thereof would be in order , which reads:--
(16) "manufacture" or "produce" includes:-
(a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another district article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product;process of printing, publishing, lithography and engraving; and (c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repacking or preparation of goods in any other manner ."
9. It is evident from the above that even mixing of different qualities of tea or blending of it would form part of 'manufacture' in light of the term 'manufacture' as defined in the Sales Tax Act, 1990, where under the Sales Tax Special Procedures Rules, 2007 providing the levy of value addition sales tax had been framed. Interestingly , identical definition of 'manufacture has been provided in Federal Excise Act, 2005. The assertion by Deputy Commissioner , IR, in his above referred letter that the appellants, ought to maintain the process like that of TAPAL or LIPT ON to qualify the definition or status of a 'manufacture' is far from what the law stipulates. Reliance of the adjudicating of ficer upon this report is therefore mis-conceived and un-sustainable in the law .
10. Regarding the second question involving jurisdiction for initiating recovery process of short levied / not levied value-addition tax under the Special Sales Tax Procedures Rules, 2007 and consequent concession of income tax, one would tend to refer to statutory position in this behalf. The Adjudicating Officer, in the impugned order , directed for recovery of short payment of "value-addition sales tax" under Section 36 of the Sales Tax Act, 1990 with default surcharge in terms of Section 34 ibid. It will be appropriate to take up (erstwhile) Section 36 which dealt with the recovery of tax, not levied or short levied ("36. Recovery of tax not levied or short levied or erroneously refunded").
11. Section 36 was omitted from the Act vide Finance Act, 2012 (XVII of 2012). The impugned order-in-original raising the demand was issued on 28.05.2013. Even at the time of its omission, the officer empowered to recover the dues was an officer of 'Inland Reven ue', as substituted for the officer of 'Sale s Tax' by the Finance Act, 2010 (XVI of 2010). Quite clearly , the powers to recover the dues had been withdrawn from the officer of Sales tax with the enforcement of Finance Act, 2010. Further , the entire Section 36 was omitted from the law by the Finance Act, 2012. All the GDs which are subject of the impugned order-in-original pertain to years 2011 and 2012. The impugned order which provides for the recovery of the sales tax dues is dated 28.03.2013. That being the case, the proceedings instituted by an officer of Sales Tax to initiate recovery of short levied sales tax were, ab initio,authorized and unlawful subsequen t to the amendment made vide Finance Act, 2010 (XVI of 2010). That apart, Section 36 itself did not exist follow ing its abolition from the Sales Tax Act, 1990 by the Finance Act, 2012 (XVII of 2012). The initiation of the proce edings for recovery under the erstwhile provision of the law in 2013 was therefore without jurisdiction and void. As a corollary , the imposition of default surcharge under Section 34 ibid was also not in order . Invoking Section 32 of 1969 to borrow support to raise the recovery of sales tax was uncalled for too, as the said Section pertained only to the 'matters' of the Customs.
12. Regarding the recovery of short levied income tax, reference is made to an order passed by this Tribunal in Appeal No. 187/CU/IB/2008 reported 2010 PTD (Trib.) 2086 and, more importantly , to the judgment announced by the Hon'ble High Court of Sindh in C.P. No.216/13 dated 26.02.3013 titled 'Lucky Cement v. Federation of Pakistan'. The Hon'ble High Court of Sindh has observed:-- "Whatever done in terms of Section 148 is in connection with or relating to incom e tax, and not to customs. The jurisdiction conferred on the Collector of Customs is obviously only by way of administrative convenience. He is a creature of the Customs Act and is empowered and obliged under the statute to collect, and if necessary recover , enforce, customs duty. The 2001 Ordinance (like the 1979 Ordinance) found it expedient to empower him to a carefully limited extent in respect of collection of advance income tax. But the fact that the Collector of Customs is dealing with such collection does not make the matter of it "a matter of" or "relat ing to" customs. It remains and retains its character of being a matter exclusively of income tax. Since a key element, laid down at the very beginning of sections 32 and 32A is entirely (and necessarily) not applicable in relation to section 148, it follows that no offence under the former provisions could be made out for purposes of clauses (14) and (14A) of section 156(1) of the Customs Act in respect thereon"
13. One is only persuaded to agree to the above view and observe that Section 32 of the Customs Act, 1969 was also not validly applicable to this case, and the power available to Customs Officer in terms of Sections 148 and 50(5) of the Income Tax Ordinance, 2001, were limited to 'collection' of the tax only The recovery of short payment of income tax, if any, could only be demanded and effected by the officer of Inland Revenue of competent jurisdiction. A Customs Officer could not assume upon himself the power , which the Income Tax Ordinance had not conferred upon him. Accordingly , the proceedings of recovery of short levied/not levied income tax in this case were again, ab initio, void and unlawful.
14. To sum up, it is held that the dema nd raised through the impugned order lacked jurisdiction and reflected improper use of powers by the officers concerned. The application of judicious mind is palpably absent from the way the case has been addressed. For the reasons discussed above, the impugned order is held as un- maintainable and void on facts and the law. The appeal is, therefore, allowed and the impugned order-in-original is set aside. Order passed accordingly .