OMAR SIAL, J.---These petitions turn on whether the petitioners are entitled to the refund/release of their guarantees/pay orders furnished pursuant to a court order , when, as per the case of the respondents, they were required to prove that the incidence of customs duty had not been passed onto the consumer in terms of the provisions of section 19-A of the Customs Act, 1969, which (according to the department) they have failed to do.
2. The petitioners are engaged in the business of manufacturing welded steel pipes. The petitioners have invoked the writ jurisdiction of this court because they are aggrieved with the failure of the Customs (referred to as "the department" from now onwards) to releas e/return the security earlier furnished by them. This is the second round of legal proceedings between the parties.
3. The origins of the dispute between the parties go back to the year 2013. At that time, pursuant to a Government policy to promote trade between Pakistan and China, the local industry for the manufacture of welded steel pipes was given a concession in terms of which they were exempted from the payment of customs duty on raw material that they imported for their manufactur ing business. Such concession was contained in notification S.R.O.
659(I)/2007 dated 30-6-2007 ("SRO 569"). There is no dispute between the parties on this count.
4. The dispute between the parties arose when consignments of steel reached the Karachi port. The department detained the consignments on the ground that the material imported was alloy steel falling under EIS code 7208.9090 of the Pakistan Customs Tariff and therefore subject to 5% customs duty. The importers (which included the petitioners) on the other hand argued that the material imported was non alloy steel thus qualifying for complete exemption in accordance with SRO 659. The petitioners being aggrieved by the classification made by the department invoked the writ jurisdiction of this Court by filing petitions (such as e.g. C.P . No. D-3816 of 2013).
5. Keeping in view the fact that the consignments were incurring demurrage while the parties were disputing the applicable customs duty , this Court as an interim arrangement, on 25-9-2013 ordered, inter alia, as follows: "Having considered the matter and without prejudice to the case of any of the parties, since the goods are incurring demurrage, we feel that an interim arrangement. is called for. Accordingly , we direct that in respect of differential amount of the duty, taxes, etc. each of the petitioner shall in respect of its relevant consignment, deposit 50% of this amount with the department, and for the balance 50% they may give bank guarantee(s) and/or pay order(s) made out to the concerned Collectorate. Such bank guarantee and/or pay order(s) to be deposited with the Nazir of this Court. Once needful is done the Nazir shall issue appropriate certificate in respect of each such petitioner , and on presentation of such certificate by the concerned petitioner to the department (and on payment of one-half of the differential amount as noted) the relevant consignment shall be released accordingly .- The importers including the present petitioners, complied with the order of this Court and furnished the requisite security .
6. C.P. No. D-3816 of 2013 and connec ted petitions were disposed of on 4.5.2015 in terms of a consent order which was as follows: "After hearing the learned counsel for the respective parties at length, these petitions are disposed of through following consent order:-- All the consignments of Hot Rolled Steel Sheets in coils the laboratory test report whereof that it contain more than 0.0008% boron as inherent part of the steel would quality as Alloy steel, which would not attract payment of any duties. The respondents after examining this aspect in the light of test reports would issue letters to the respective importers whose consignment of Hot Rolled Steel Sheets in coils contain more than 0.0008% of Boron Steel Sheets in coils contains more than 0.0008% of Boron for release of the bank guarantees, pay orders, cheques or cash deposited with the Nazir of this Court against release of consignments.
In case the respondents are of the view that boron is not inherent part of the Hot Rolled Steel Sheets in coils and is sprayed to avoid payment of duties, they would be at liberty to get the consignment re-examined from M/s. A.Q.
Khan Research Laboratory (KRL). However , not more than four samples of one importer having any number of consignments would be sent at the cost of the importer .
The cases in respect of those consignments which are sent for re-testing would be finally decided within a period of 90 days and of those cases in which samples are not re-sent would be deiced within a period of 60 days.
At this juncture respondent pleaded that they are entitled to invoke the provisions of section 19(a) of the Customs Act, 1969, as the burden might have passed on to end user. In our opinion, it is an independent issue and has nothing to do with controversy in hand. However , the respondent would be at liberty to act in accordance with law in case they are of the view that the burden has been passed on to end user ."
7. In compliance with the order dated 4-5-2015, samples from the consignments were sent for lab testing. After the necessary tests it was determined that the importers were right and the department was wrong. The consignments were non alloy steel and thus qualified for the benefit of SRO 659. The importers approached the department for the return of their guarantees/pay orders but were informed that the department wanted these importers to first satisfy that the provisions of section 19-A of the Customs Act, 1969 were not applicable before they got their securities back.
8. Some of the importers approached the Deputy Collector of Customs with their grievance who vide an Order dated 31-5-2016 held that the importers were not entitled to the return of their pay orders and hank guarantees as they had failed to prove under section 19-A that they had not passed on the burden to the end users. Section 19-A of the Customs Act, 1969 was inserted in the Act by virtue of the Finance Act, 2005 and provides as follows: 19A. Presumption that incidence of duty has been passed on to the buyer . ---Every person who has paid the customs duty and other levies on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such customs duty and other levies to the buyer as a part of the price of such goods.
9. It is important to note that the vires of section 19-A is not challenged before us. The issues that have been argued before us are whether the importers are entitled to get their guarantees/pay orders back and whether pursuant to section 19-A the department has the power to ask the importers to prove that they have not passed on the burden of tax as a condition preceden t to the return of the security . Before us in these proceedings, the learned counsel for the Petitioners has raised three grounds in support of the stance of the petitioners: One section 19-A of the Customs Act, 1969 is not applicable in the present case as that provision comes into play only after customs duty has been "paid"; as the pay orders and guarantees furnished were in the nature of a security , the customs duty was not "paid' and hence section 19-A cannot be invoked. Two, section 33 of the Customs Act, 1969 is not applicable in the present case as no customs duty has been paid through "inadvertence, error or misconstruction".
In support of these arguments learned counsel relied on a decision of the Honourable Supreme Court in a case titled Collector of Customs v. Gul Rehman 2017 SCMR 339. Three, that the department has acted in a discriminatory manner by returning the pay orders and guarantees of some importers while declining to return the securities of other similarly placed importe rs, including the petitioners. Learned counsel have also argued that while the importers being law abiding citizens are agreeable to providing reasonable documentation in proof that they have not passed on the incidence of the duty to the end users, the department has gone on a fishing and roving exercise by asking for as many as eighteen documents from the petitioners to prove that the burden had not been passed on by them.
10. Opposing the stance taken by learned counsel for the petitioners, learned counsel for the department have argued that by depositing pay orders and furnishing guarantees, the petitioners had as a matter of fact "paid" the customs duty and therefore the departm ent was well within its powers to invoke section 19-A. In support of this argument reliance has been placed on the judgments of the Supreme Court in Fecto Belarus Tractor Ltd v.
Government of Pakistan 2005 PTD 2286 (hereinafter "Fecto the petitioner/appellant being referred to as "Fecto Belarus ") and Orient Color Lab (Pvt) Ltd. v. The Director General, Customs Valuation, Karachi 2011 PTD 1594 . Learned counsel for the department has also argued that this is a clear cut case under section 33 of the Customs Act, 1969 and that a refund, if any should have been claimed within one year .
11. We have heard the learned counsel for the parties and have also examined the available record with their able assistance. The issues for adjudication before us are as follows: (i) Whether in accordance with section 33 of the Customs Act, 1969 a request for refund had to be made by the petitioners within one year? (ii) Whether the furnishing of guarantees/pay orders in compliance of the Court order dated 25.9.2013 in C.P. No. D-3816 of 2013 etc. was tantamount to the customs duty being "paid"? (iii) Whether the department was justified in declining to return the guarantees/pay orders on the ground that the importers should first prove that the burden of tax had not been passed on to the end consumer? If the answer to the question in (iii) is yes, then further , was the department justified to ask for the petitioners to provide the documentation it had asked for before release of their guarantees/pay orders? (iv) Whether the department was justified to return some of the importers the guarantees/pay orders while declining to do the same for others?
12. We begin by setting out section 33 of the Customs Act, 1969, as it stood at the time of the dispute (it is pertinent to mention that the said section has been amended after that). It was as follows:
33. Refund to be claimed within one year.---(1) No refund of any customs duties or charges claimed to have been paid or over-paid through inadvertence, error or misconstruction shall be allowed, unless such claim is made within one year of the date of payment: Provided that no refund shall be allowed under this section if the sanctioning autho rity is satisfied that incidence of customs duty and other levies has been passed on to the buyer or consumer .
(2) In the case of provisional payments made under section 81, the said period of one year shall be reckoned from the date of the adjustment of duty after its final assessment.
(3) In the case where refund has become due in consequence of any decision or judgment by any appropriate officer of Customs or the Board or the Appellate Tribunal or the Court, the said period of one year shall be reckoned from the date of such decision or judgment as the case may be.
13. As mentioned above, learned counse l for the department has argued that the request for refund should have been made within one year as provided for in section 33 whereas learned counsel for the petitioners argued that section 33 is not applicable in the present case. In this regard, we observe from the current proceedings as well as the earlier round of litigation between the parties in C.P. No. D-3816 of 2013 etc. that the guarantees/pay orders furnished by the petitioners were furnished in the form of security (to be encashed in the event they lost the case) and not on account of inadvertence , error or misconstruction . The importers stance was clear all along - they were not liable to pay the customs duty being demanded on their imports. The guarante es/pay orders were furnished as an interim arrangement to prevent further demurrage of their consignments and at that preliminary stage, to partially protect the interest of the department in the event it was found that the importers were indeed liable to pay 5% customs duty. The Supreme Court in the Gul Rehman case considered the position in a similar set of facts and circumstances. In that case, the respondent was an importer of fabrics and it made a declaration in the bill of entry that the imported goods were covered by heading 5407.5200 attracting 14% customs duty. The department controverted this declaration and claimed instead that the correct PTC heading was 5903.1000, on which 25% customs duty was payable. In appeal, it was determined that the appropriate heading was indeed 5407.5200 and that there was no misdeclaration by the respondent. The respondent sought refund of the amount paid by it on the basis of the order-in-original. The department declined to refund the said amount. Instead, the department held that as the incidence of the duty had been passed onto the consumer by the respondent therefore it was not entitled to any refund in terms of sections 33 and 19-A of the Act. The Court observed: "... it is clear from the language of section 33(1) that refund in terms thereof is to be allowed only where/if customs duty has been paid as a result of some inadvertence, error or misconstruction, which is not the position in the present matter . Right from the beginning the respondent has agitated that the declaration made by it under PTC heading 5407.5200 was correct. There was no inadvertence, error or misconstruc tion involved in such declaration whereas it has been the stance of the department that this heading was incorrectly attributed to the goods."
The Supreme Court held as follows (emphasis supplied): "Therefore the proviso to section 33 has to be confined to the particular subsection to which it is attached, i.e. subsection (1), and if the case does not fall within the purview of such subsection in that the customs duty was not paid as a result of inadvertence, error or misconstruction then obviously the proviso would not be relevant. Before a proviso can have any application, the section itself must apply . A holistic reading of section 33 of the Act particularly the provisions of subsection (3), clarifies that where a refund becomes due as a result of any decision or judgment passed by a customs officer, Appellate Tribunal etc., the proviso to subsection (1) would not be applicable because no such proviso is attached to subsection (3), meaning thereby that the refund has to be made notwithstanding the fact that the incidence of customs duty had been passed onto the customer and therefore section 19A of the Act would not be attracted."
14. In view of the above pronouncement of the Supreme Court we are of the view that as the guarantees/pay orders involved were not given by the importers due to any inadvertence, error or misconstruction , section 33 (as it stood at the relevant time) is not applicable in the present case. We are also cognizant of the fact that the Supreme Court has gone to hold that if section 33 is not applicable then "the refund has to be made notwithstanding the fact that the incidence of Customs duty had been passed onto the customer and therefore section 19-A of the Act would not be attracted."
15. In essence the dispute before us can be resolved in terms of the Gul Rehman , judgment-but as learned counsel for the department has relied heavily on the judgment in the Fecto case, it is appropriate also to address this argument. With such respect, we do not concur with the view taken by learned counsel for the department that the situation in the present case is exactly the same as in the Fecto case and hence the principles of that decision are applicable. There are several reasons why we come to this conclusion. For starters. it must not be lost sight of that the issue before the Supreme Court in Fecto was whether or not the official respondents had committed a contempt of court by invoking the guarantees given to them in compliance of an order of the same Court, i.e., the Supreme Court. The Court observed that either Fecto Belarus should have proved that the burden of sales tax had not passed on to the consumer or alternatively filed a suit or a writ petition. An adverse presumption was made against Fecto Belarus because it had not done so and instead sought return of the guarantees in contempt proceedings. It was observed as follows (emphasis supplied): "... Petitioner in its own right had no Legal authority to retain Customs Duty and Sales Tax with it and it was its duty to have transferred the same to the CBR. However , to resolve the controversy the C.B.R. constituted a Committee, calling upon the petitioner to substantiate as to whether burden of Sales Tax had been passed on to the end user or not and in such situation, petitioner ought to have established to the satisfaction of the Committee that the burden of Customs Duty and Sales Tax, equal to the amount of bank guarantee, furnished by it, had been passed on to the purchaser or not but it failed to do so with the result that an adverse presumption may be drawn against it under Article 129 of the Qanun-e-Shahadat, 1984 that the incidence of Sales Tax and Customs Duty had been passed on to the purchaser . Alternatively petitioner instead of instituting proceedings for contempt of Court should have invoked the equitable jurisdiction of the Courts, either by filing a suit or a writ petition in terms of section 72 of the Contract Act, for getting the refund of Sales Tax and Customs Duty. Essentially petitioner did not invoke the equitable jurisdiction of the Courts, presumably for the reason that it had already passed on the incidence of Customs Duty and Sales T ax to a third party ."
In the case before us, the constitutional jurisdiction of this Court has been invoked by the petitioners. Hence, the presumption drawn by the Court that the burden of duty/tax had been passed on to the end consumer would not be attracted in the present case.
16. Secondly in Fecto during the pendency of the petition for leave to appeal, a request was made by the official respondents that the operation of the judgment of the Lahore High Court (which held that Fecto Belarus was entitled to the concessions) may be suspended. Request so made was allowed by way of granting interim relief in chamber . However , while granting leave to appeal, the condition of interim order was modified thereby directing the petitioner to furnish a bank guarantee to the satisfaction of the Collector Customs concerned within a period of one month or earlier . Accordingly , on acceptance of their plea, the bank guarantee was invoked by the official respondents. The Supreme Court itself clearly regarded this as important: "....It is important to note that before the Lahore High Court the petitioner had not furnished any bank guarantee for the purpose of release of Tractors nor the said Court as well as this Court in the judgment passed in Civil Review Petition, dilated upon the question whethe r the burden of Customs Duty and Sales Tax has been passed on or not by the petitioner to end consumer of Tractors."
This was not the case in the dispute before us. The guarantees in Fecto were deposited on the order of the Supreme Court when it allowed leave to appeal and at a time when the judgment of the Lahore High Court was suspended. The guarantees were called during such period as well. In the present case, the guarantees were furnished on the orders of this Court at a time when there was no order in the field that was working in favour of the department.
17. The Supreme Court also held as follows: "In view above provisions of law, it may also be noted that the petitioner had no right to claim refund of Customs Duty and Sales Tax, which it had recovered from the end user as an agent of the Government, if its burden had been passed on by it, being the property owning purchasers, otherwise it will remain with the Government, who would spend it, on the welfare of general public."
No doubt, as held by the Supreme Court, a person cannot claim refund of a duty or tax the burden of which he has passed on to the end user. However , with respect, it is clearly a condition preceden t is that the burden has actually been passed on to the end user. Further , in our respectful view, the above observation of the Supreme Court obviously and surely cannot be interpreted to mean that such a power can be exercised by the department in an unfair and discriminatory manner . A bare look at the list of documents that the department has asked the petitioners to furnish suggests a fishing and roving exercise and an attempt to create unnecessary and unfair hurdles in the way of the petitioners to carry on their businesses. The petitioners have always been willing to provide all information as reasonably asked for and, according to learned counsel for the petitioners, have also provided sales tax returns and goods declarations to the department. Keeping in view the data which the department already possesses on the import and importers of Pakistan, demanding the documents that it has, is unreasonable and unfair . Had the department asked for reasonable documents it would have perhaps shown its bona fide .
18. Importers are an integral part of the economy of this country . Reasonable information only should be required to be asked by the department. Government policies and actions should focus on removing business irritants to allow expansion of existing business and to attract new business. The power of section 19-A must not be used as a garb to harass importers, to make their lives so miserable that the economy of the country suffers. While making this observation we do have in mind the list of documents that the department has asked the importers to produce in order for the department to reach a conclusion that the burden has or has not been passed on to the consumer .
As we went through the list of the documents which the department requires, we saw little relevance of some documents specially keeping in mind the data that is in any case available to the department. At all stages the importers have been ready and willing to provide all documents reasonably asked for and in this regard have also, it has been argued before us, submitted their sales tax and goods declarations to the authorities. We are of the view that once an importer has reasonably discharged its onus to show that the burden of tax has not been passed on to the end user , it is up to the department then to prove otherwise. The department has failed to do SO.
19. The fact that a number of guarantees which appeared to have been cancelled and returned to certain importers who were sailing in the same boat as the petitioners is also a cause of concern for us. The argument of learned counsel that the department had employed a pick and choose policy could not be successfully controverted by learned counsel for the department in either the written comments filed or in the verbal argument before us. Such a line of action by the department violates the rights of the petitioners under Article 25 of the Constitution.
20. With respect we are also of the view that learned counsel for Custom's relian ce on the decision in the Orient Color Labs case is also misconceived. In that case, documentary evidence had been produced by the department in Court that proved that the petitioners had indeed jacked up the price of the goods and passed on the burden to the end user. This is not the situation in the case before us. No such documentary evidence was produced by the department to controvert the petitioners' documentation that the burden had not been passed on.
21. In view of the above discussion, our findings on the issues raised before us are as follows:
(i) Section 33 is not applicable in the circumstances of the present case. Therefo re the limitation of one year to seek a refund would not come into play .
(ii) The furnishing of guarantees/pay orders in compliance of the Court order dated 25-9-2013 in C.P. No. D-3816 of 2013 etc by the petitioners did not tantamount to the customs duty being "paid" within the meaning of the statute.
(iii) If section 33 is not applicable in a case, then the refund has to be made notwithstanding the fact that the incidence of customs duty had been passed on to the customer and therefore section 19A of the Customs Act would not be attracted. The power of the department under section 19A does not give the department a licence and unfettered discretion to go on a fishing and roving exercise. The power must be exercised fairly and reasonably .
Once an importer has provided reasonab le evidence to show that the incidence of duty has not been passed on to the end user , it will have discharged its burden and it would be up to the department to then prove otherwise.
(iv) The act of the department to return some of the importers the guarantees/pay orders while declining to do the same for others who were sailing in the same boat is discriminatory unfair and violates the fundamental rights of the petitioners.
22. In view of the foregoing, these petition s stand allowed. The department is directed to return the guarantees/pay orders to the petitioners within thirty days from the date of this judgment. If, and to the extent that any security has been enforced, then the concerned petitioner will be entitled to a full refund to the extent to which the same has been enforced. Such refund to be made within sixty days from the date of this judgment by direct payment to the petitioner or deposit of the same with the Nazir of this Court. Any amount so deposited is to be released to the concerned petitioner subject to proper verification and confirmation. There will be no order as to costs. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.