MUHAMMAD SAJID ABBASI, MEMBER JUDICIAL-II.--- Through this order , I intend to dispose off Appeal No,67/2017 directed against Order-in-Original No,307/2016/17 dated 10.11.2016 passed by Additional Collector of Custom, Adjudication-I, Custom House, Karachi.
2. Briefly , the facts of the case are that the appellant imported 04 consignment of "Belt Strips/Composition Leather " against Goods Declaration (GD) Nos,KAPW -HC-18508 dated 07.08.2014, KAPW -HC-73919 dated 17.11.2014, KAPW -HC-95915 dated 26.12.2014 and KAPW -HC-189455 dated 29.05.2015 while claiming the benefit of SRO 1125(I)/201 1 dated 31.12.201 1, upon examination under the provision of Section 198 of the Customs Act, 1.969 (Act), and Rule 435 of Sub-Chapter III of Chapter XXI of Custom Rules, 2001 (Rules), goods were found as declared consequent to which the appropriate authority as defined in Section 2(a) after perusal of declaration transmitted under Section 79(1) and Rule 433, uploaded documents defined in Section 2(kka), examination report passed assessment Order under Section 80 and Rule 438, while allowing the benefit of the aforesaid SRO, in exercise of vested powers delegated upon him through SRO 371(1)/2002 dated 15.06.2002 and transmitted view messages for payment of additional amounts of duty and taxes, which appellant paid, thereafter the inbuilt authority of Customs Computerized System (CCS) passed clearance orders under the provision of Section 83 and Rule 442 of the Act/Rules. Subsequent to the affection deliveries of the consignments, the subordinate of the Director , Directorate of Post Clearance Audit (respondent No, 2) conducted audit of the GDs and observed/alleged that the appellant had illegally availed the benefit of SRO 1125(I)/201 1 dated 31.12.201 1 as the goods imported by him were in finished form and no further work was desired to be done on those and as such were falling under PCT heading 4203.3000 meant for "Article of Apparel and Clothing' accessories of Leather or composite Leather " as against declared PCT Heading 4115.1000 meant for "Composition Leather with the basis of leather or leather fiber in slabs, sheets or strips whether or not in rolls ", attracting levy of customs duty @ 20%, sales tax @ 17%, additiona l sales tax @ 3% and income tax @ 6%. This alleged misdeclaration of PCT heading resulted in evasion of Rs, 1,998,138.00 of Sales Tax, Additional Sales Tax and Income Tax.
Contravention report to the said effect was framed and forwarded to respondent No, 1 by the respondent No, 2, who issued show-cause notice to the appellant with the facts narrated in the contravention report and for the contravention of the provision of Section 32(1), (2) and (3A) of the Act and Sections 3, 6, 7 and 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, punishable under clause (14) of Section 156(1) of the Act, Section 7(A) of the Sales Tax Act, 1990 and Sections 148 and 182 of the Income Tax Ordinance, 2001 read with Chapter X of Sales Tax Special Procedure Rules, 2007 (Special Procedure for Payment of Sales Tax by the importer). The appellant replied to the allegation leveled in the show-cause notice, but of no avail and respondent No, 1 passed order dated 10.11.2016 through which he held that the charges levelled in the show-cause notice stand established and ordered payment of evaded amount in addition to imposed penalty of Rs, 200,000/-, the operative para of the impugned order is reproduced here-in-under: "I have examined the case record and considered written / verbal arguments put forth during hearings by both sides. The upshot of the department's case is that the respondents imported four consignments of "Belt Strips / Composition leather" and got them cleared on payment of reduced rate of Sales Tax, Additional Sales Tax and Income Tax by mis-declaring the PCT heading as 4115.1000 in order to wrongly avail the benefit of SRO 1125(I)/201 1 dated 31-12-201 1. The duty / taxes so evaded are now recoverable. The respondent on the other hand, contends that the imported goods underwent manufacturing / finishing in the form of cutting / piercing and affixing of buckle before being marketed to retailers. Therefore, the benefit of reduced rate of Sales Tax Additional Sales Tax and Income Tax was rightly availed the terms of Serial No, (1) of the Table read with Serial Nos, (iii) and
(vii) of the Conditions in SRO 1125(1)/2001 dated 31.12.201 1. However , the contention of the importer respondent lacks merit and is not tenable under the law. The Advocate has been unable to avert the department's assertion (based on the images retrieved from the system) that the goods are cut to size finished articles (Belts) without buckle only, on which no further work is required. The PCT heading claimed by the respondent (4115.1000) is for "composition leather with a basis of leather or leather fiber in slabs, sheet or strips, whether or not in rolls". Since the instant goods are not in 'raw' form as per the above PCT claimed by the importer / respondents and are cut to size / ready for use belts. I uphold the contention of the department that the impugned goods are correctly classifiable under PCT heading 4203.3000 as "articles of apparel and clothing accessories of leather or composite leather ." Hence, the charges levelled in the Show-Cause Notice stand established. The evaded amount of Taxes by M/s. Sheikh and Co. has been calculated by the department as Rs,1.998.138 /-. Accordingly , the importer is directed to deposit the aforesaid amount in the Government Treasury (along with default surcharge to be calculated by the department at the time of payment) under Section 32 (2) of the Customs Act, 1969 read with sections 33(5) and 34 of the Sales Tax Act, 1990, and relevant sections of the Income Tax Ordinance, 2001, failing which action may be initiated against the respondent under Section 202 of the Customs Act, 1969 read with Chapter XI of the Customs (Recovery) Rules, 2001 notified vide S.R.O. 450(1)/2001 dated 18.06.2001. A penalty of Rs,200.000/- (two hundred thousand) is also imposed on the respondent under clause (14) of Section 156(1) of the Customs Act, 1969, for violation of the aforesaid provisions of law ."
4. The appellant filed the instant appeal on the basis of grounds enumerated therein, the advocate on the date of hearing argued the case strictly in accordance with those. From the Respondents side none appeared on the final date of hearing fixed for 08.11.2018. Furthermore no cross objections under Subsection (4) of Section 194A of the Act were filed within the stipulated period of 30 days by the respondent No,1, desp ite giving ample opportunity and specific directions to do so on or before 08.11.2018 positively . This proves the respondent's lackluster approach and non-serious attitude/intent in defending the case, confirming that they have made the case on assumption/presumption and conjectures. Hence, they are not in a position to controvert the grounds adopted by the appellant' in regards to the veracity of power/jurisdiction of the respondents Nos, 1 and 2 and legality of the impugned show-cause notice and order-in-original.
5. Rival parties heard and case record perused. To proceed with, I am at loss to comprehend that under what authority respondents Nos, 1 and 2 assumed the power of monitoring the admissibility of payment of Sales Tax at reduced rates on the imported goods falling under 5 Sectors notified in SRO 1125(1)/201 1 dated 31.12.201 1 by the manufacturers, importer , exporter and whole-seller , who are registered persons and are appearing on the Active Tax Payer List (ATL) on the website of the Federal Board of Revenue (FBR). In my opinion it is for the officials of the Clearance Collectorate/respondent No, 1 to allow the benefit under the aforesaid SRO, only upon verification that the importer (appellant) is doing business in one of the 5 sectors, is registered with the RTO and appears in the ATL on the website of the FBR. The monitoring of entitlement of benefit of payme nt of sales tax at reduced rates under the regime of aforesaid SRO post clearance rests with the Officials of Inland Revenue Services (IRS), they are empowered to recover the inadmissib le benefit if granted/allowed by the officials of Clearance Collectorate at import stage under the provision of subsections (3) and (4) of Section 11 of the Sales Tax Act, 1990 (STA) and likewise for income tax under the provision of Section 162(1) of the Income Tax Ordinance, 2001 (ITO). Upon perusal of audit observation, it has been observed that it has been prepared/issued by the Deputy Director , PCA as against notified designation appearing in column 3 of SRO 42(1)/2010 dated 23.01.2010 i,e, Deputy Commissioner of IRS. Similarly , in any section of ITO, respondent No, 2 has not been appointed as Officer of IRS for conducting audit under the provision of Section 177 of the ITO of the books of accounts of an importer . Instead under Section 228 of the ITO, Directorate General of Internal Audit has been empowered to do so. Resultant, respondent No, 2 is not empowered to conduct audit under the provision of Section 25 of the STA and Section 177 of ITO either in the capacity of Director , or Deputy Director , rendering the audit so conducted post clearance in the matter of sales/income taxes as without power/jurisdiction and as such of no legal effect. Hence, void and ab-initio and coram non judice.
6. I am also flabbergasted to observe, with great concern, that respondent No,1 invoked Sections 3, 6, 7 and 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001 despite being an Officer of customs and without going through their expressio ns and to the fact that when those are to be invoked and upon whom. No doubt Section 3 is indeed a charging Section but under the said Section the appropriate authority is Officer of IRS, whereas Section 6 defines mode and manners of collection of sales tax at import stage by the customs authority , resultant it is not a charging section instea d a machinery and Section 7 speaks about determination of tax liability at the time of filing B sales tax return under section 26 of the STA, this is as well a machinery section. Whereas, Section 34 speaks about default surcharge to be paid upon contravention and establishing of the charge under charging section. Likewise, Section 148 prescribes the procedure for collection of income tax at import stage by the authorities referred therein. Meaning thereby that the said sections are independent under which no charge can be invoked. No show-cause notice can be issued under these sections. Issuance of show-cause notice by invoking off irrelevant/ erroneous sections, renders the show-cause notice void and ab-initio and of no legal effect as held in reported judgment judgments Asst. Collector v. Khyber Elec. Lamps 2003 PTD 1275, D.G. Khan Cement v.
Collector of Customs 2005 PTD 480, Caltex v. Collector 2003 PTD 1593 , Union Playing Card Company v.
Collector of Customs 2002 MLD 130, Atlas Tyres v. Addl. Collector 2002 MLD 180, State Cement v. Collector PTCL 2001 CL 558, Kashmir Sugar v. Collector 1992 SCMR 1898 , Rose Color v. Chairman, CBR and 2013 PTD 813 Sarwar International v. Addl. Collector of Customs . Apart from the aforesaid illegality , the respondent No, 1 opted to issue show-cause notice in the capacity of Officer of Customs, in the matter of sales/income tax in the absence of availability of any provision to the said effect in the Act and non appointment as an officer of IRS either in the provision of Section 30 or subsequent of the STA or through any section of ITO and in derogation of the settled proposition of law that a judge, which respondent No, 1 is acting should wear all the laws of the land under his sleeves and proceeding so conducted by him should strictly be in accordance with the provision of the statute, his appointment under the respective statute and delegation of powers through a notification explicitly . The respondent No, 1 is not appointed under Section 30 or any other section of the STA nor under any section of the ITO. Resultant, he is not empowered to lay hands on the matter of sales/income tax in the capacity of officer of Customs. By issuing show-cause notice and passing order-in-original by usurping the power of officer of IRS.
Hence, he acted without power/jurisdiction, rendering these of no legal ef fect and as such ab initio, null and void.
7. The assuming of jurisdiction is of great importance and power has to be exercised within the allotted sphere, acting contrary to that is an incurable or rather a fatal for the health of the case and this has been held countless times by the Hon'ble Supreme Court of Pakistan that in cases of assuming wrong jurisdiction, the structure built thereon ought to crumble down, reference is placed on the reported judgment 2001 SCMR 1822 Ali Muhammad v.
Chief Settlement Commissioner , wherein the Hon'ble Chief justice of Pakistan presiding a bench in the capacity of Judge of Supreme Court held that : "whenever order are passed by an officer without caring whether jurisdiction vests in him or not, it is prima-facie reflect on his conduct as well as competency . It is also to be noted that wheneve r authority is exercise in such a manner then no other inference can be drawn except that the functionary has transgressed his jurisdiction for the consideration other than judicial one and the Courts seized with such orders may recommend any action against the said officer because neither the executive authorities nor judicial forum will pass a wrong order because the jurisdiction in both the capacities is conferred upon such authorities to discharge their function in accordance with law which has bestowed upon them to function in that capacity and if there is abuse of power by such officer then no hesitation should be felt in passing stringent stricture against of ficer keeping in view of norms of justice."
Their lordship also held in reported judgment PLD 2004 Supreme Court 600 All Pakistan Newspaper Society and others v. FOP and others that "determination of jurisdiction by Court seized with the matters is one of the important element in administration of justice as if justice has been provided basing upon corum non judice order then same would have no legal sanction behind ." And in PLD 2005 Supreme Court 842 Khyber Tractor (Pvt.) Ltd. v. Pakistan Through Ministry of Finance, Revenue and Economic Affairs that "question of jurisdiction of a forum is always considered to be very important and any order passed by a Court or a forum having no jurisdiction, even if it is found to be correct on merit is not sustainable. Jurisdiction of a Court lays down a foundation stone for a judicial or a quasi judicial functionary to exercise its power/authority and no sooner the question of jurisdiction is determined in negative the whole edifice built on such defective proceeding, is bound to crumble down."
8. Notwithstanding to the adumbration made here-in-above, it is to be noted that the order passed by the competent authority defined in Section 2(a) under the provision of Sections 80 and 83 and Rules 438 and 442 of the Act/Rules can only be corrected by the revisional authority in exercise of the power of Section 195 ibid, which empowers the Board or Collector of Customs to examine suo-motu the record of any proceeding (passing of assessment order is a proceeding by any mean/standard) for the purpose of satisfying itself or as the case may be, himself as to the legality or propriety of any decision or order passed by subordinate officer. Meaning thereby that after reopening the existing order the Board or Collector may pass afresh order to as it or he may deem think fit after issuance of show-cause notice to the affected person in exercise of the power vested under the aforesaid section. Neither respondents Nos, 1 and 2 are vested with the powers under Section 195 of the Act. Both usurped the powers not vested with them. Resultant, the act of conduction of audit, preparation of contravention report and issuance of show-cause notice suffer from lack of power under the aforesaid provision rendering these void and ab-initio as held by Superior Court of Pakistan in umpteenth judgments e.g. PLD 1975 SC 331, 2002 CLC 705, 2004 PTD 624, 2004 PTD 3020 , 2007 PTD 1895 , 2009 PTD (Trib) 1925, 2005 PTD (Trib.) 135, 2010 PTD (Trib.)
759, 2010 PTD (Trib.) 1283, 2010 PTD (Trib.) 2523. Even otherwise, on conclusion of the transaction, under the provision of Sections 80 and 83 and Rules 438 and 442 of the Act/Rules, the orders so passed becomes an appealable order under Section 193 ibid. Which could be either preferred by respondent No, 2 or Deputy Collector of Customs of the Clearance Collectorate,. in case of any reservations against the passed assessment orders, the proper course of action was to assail that before the Collector of Customs Appeals. This have not been done within the stipulated period and orders so passed under Section 80 of the Act by the competent authority defined in Section 2(a) ibid became final and that cannot be disturbed by any authority .
9. In case of filing appeals by respondent No, 2 or Deputy Collector of MCC of Appraisement-W est before the Collector of Customs Appeals under Section 193 of the Act, emanating the facts of the case and the relevant provision of law. The Collector of Customs Appeals upon taking up the appeal as mandated upon him, would go through the facts and grounds and thereafter if he think fit that in the cases under adjudication correct duty and taxes have not been either levied or short paid on the basis of found goods, is empowered to issue show-cause notice under Section 32 of the Act as contemplated in 3rd proviso of aforesaid Section to the appellant/importer and after receipt of reply to the said notice the Collector of Customs Appeals would decide the appeal in the light of the issued show-cause notice and reply . In the instant case no appeal have been filed by either respondent No, 1 or Deputy Collector of the respective Group of the Clearance Collectorate, instead respondents Nos, 1 and 2 assumed the powers under Section 195 of the Act and reopened a valid assessment order passed under the provision of Section 80 ibid. Neither respondents Nos, 1 and 2 are empowered to reopen a valid assessment order passed by the Adjudicating Authority defined in Section 2(a) of the Act in exercise of powers vested through SRO 371(I)/2002 dated 15.06.2002, both acted without power/jurisdiction, hence their actions are deemed to be without any lawful authority and as such ab-initio, null and void as held by Superior Judic ial Foras in umpteenth reported judgments e.g. 2014 PTD 1256 Messrs Paramount International (Pvt.) Ltd. v. FOP and others . Assessment Orders in the subject cases had been passed by the competent authorities and the appea l against which could have been filed by respondent No, 2 himself or his superiors. Failure to do so led to the assessment orders attaining finality and becoming a past and closed transaction which cannot be disturbed or reopened by any authority or court as held in reported judgment 1989 MLD 4310 Messrs World Trade Corporation v. Central Board of Revenue that "if the order has attained finality through limitation. A fortiori; the Central Board of Revenue could not open up an order that had attained finality under the Sea Customs Act, 1878, and against which so sou motu revision lay under the Act" and 2004 PTD 3020 , Glaxo Smith Kline Pakistan Ltd, Karachi v. Collector of Customs, Sales Tax Central Excise, Karachi "that department could not re-agitate which had been decided against him---said order could be assailed in appeal or revisional proceedings, which in the present case were not initiated and therefore the same held the field and in the presen ce of earlier orders another order contrary to the said earlier order could not be allowed hold the field for the simple reason that two contrary orders could not exists at the same time".
Despite these precedents the respondent No, 2 prepared contravention report and respondent No, 1 issued show- cause notice. Rendering the whole exerci se nullity in the eyes of law as per the adumbration made in para supras.
Beside, said act is also tantamount to double jeopardy not F permitted ur Jer Article 13 of the Constitution of Islamic Republic of Pakistan and in conflict with the law laid down by the Superior Courts of IF Pakistan.
10. Coming back to the moot point that whether the goods imported by the appellant namely Leather Belt Strips are in same state condition and falls under PCT heading 4203.3000 as opined by the respondents Nos, 1 and 2 or intermediatory raw material for production/manufacture of end product and falls under PCT heading 4115.1000 of Sub-Chapter 15 of Chapter 42 of First Schedule to the Act containing expression "Composition leather with a basis of leather or leather or leather fibre, in slabs sheet or strip, whether or not in rolls; parings and other waste of leather or of composition leather , not suitable for the manufacture of leather articles, leather dust, powder and flour" and Sub-Hea ding of which 4115.1000 contained definition "Composition leather with a basis of leather or leather or leather fibre, in slabs, sheet or strip, whether or not in rolls" . Appellant contends that he imported leather belt strips of composition leather , on which payment of Sales tax on reduced rates is admissible under column 4 of Table 1 of SRO 1125(1)/201 1 dated 13.12.201 1 and was rightly allowed by the appropriate officer defined in Section 2(b) after passing assessment order under Section 80 and Rule 438 of the Act, after going through the examination report available in the reservoir of the GD's carried out by the appropriate officer, in accordance with Examination Manual, 1996 and in exercise of the powers conferred upon him under Section 198, SRO 371(I)/2002 dated 15.06.2002 and in compliance of the order of the Board outline in para 5 of CGO 12/2002 dated 15.06.2002, which no where remotely confirmed that the goods so imported by the appellant were in finished state and ready to wear , instead are in semi-finished shape and have to undergo the process of further finishing i,e, punching of holes, affixing of buckles, preparing of loops and cropping/stitching etc. Conversantly , the representative of the respondent No, 2 is of the view that the goods are in finished state and are ready to wear and no further work is goods desired to be done. Upon this, representative was asked that, whether sample of the goods is available with them, answer was in negative, representative was further asked that in the presence of categorical examination report, which is silent in regards to confirmatio n of same state goods and non availability of samples, how the respondent No, 2 and its subordinates reached to the conclusion, to which the answer was on the basis of images. This Tribunal asked him to place the images of the goods on the record, which he failed. Even otherwise, placing reliance on images for reaching at conclusion for charging any person for the act of misdeclaration is not correct/lawful authority , as those least confirm in categorical terms the status of the imported goods. For levelling charges of such serious nature post clearance, tangible un-refutable evidence is warranted. Images through any definition or interpretation least falls under the definition of "un-refutable tangible evidence." Rendering the case in question based on assumption/ presumption and conjecture and fishing inquiry , which is not permitted under law as per law laid down by the Hon'ble Supreme Court of Pakistan in reported judgment PLD 1992 Supreme Court 485, The Assistant Director Intelligence and Investigation v. B.R. Herman Mohattas (Pvt.) Ltd., Karachi that "it cannot make .a rowing or fishing inquiry or issue a notice by merely shooting in the dark in the hope that it will be able to find out some material out of those documents and then charge the party of irregularity or illegality ". The said principle was subsequently held by the Superior Judicial Fora in reported judgment (1957) 32 ITR 89, (1967) 64 ITR 516, I.T.As. 2400/2401/KB/91-92, (1995) PTD (Trib.) 580, (1995) PTD (Trib.) 1 152, (1982) 1381 ITR 742, 1993 PTD 206 , 1997 PTD (T rib.) 2209 and 2013 PTD (T rib.) 353 .
11. For laying to rest this issue in question ones for all, one has to take into consideration the definition of the word "Manufacture" or "Produce" and "Manufacturer" or "Producer" given in Section 2(16) of the Sales Tax, 1990; which reads as under: "Section 2(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 distinct 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.
(b) process of printing, publishing, lithography and engraving; and
(c) process and operations of assem bling, mixing, cutting, diluting, bottling, packaging, repacking or preparation of goods in any other manner; (Emphasis Supplied)
That as alleged in the Show-Cause Notice that the goods imported by the appellant namely belt strips of composite leather has not gone through the process of manufacture as defined in Section 2(16) of the Sales Tax Act, 1990 instead are to be sold in same state condition, therefore the appellant is not entitled for payment of sales tax on reduced rates at import stage under the regime of SRO 1125(1)/201 1 dated 31.12.201 1. This opinion of the department stand negated from the defini tion given in Section 2(16) of the Sales Tax Act, 1990, which clearly states that if any article imported in same state condition is either converted into another distinct article or product or is so changed, transformed or reshaped and it became capable of being put to use differently or distinctly or includes any process incidental or ancillary to the completion of manufactured produ ct falls within the definition of 'manufacture' or 'produce', validated reported judgment 2006 PTD 2627 . That the definition of "manufacturer" as given in section 2(25) of Central Excise Act, 1944 would include numerous processes incidental as well as ancillary to the manufacture of final product, cutting into size was an essential process for achieving final product, no belt could be produced without cutting of strips into desired sizes and thereafter affixing buckles and loops etc on those, which appellant did prior to selling those to the end consumers.
12. Notwithstanding; it is also observed that the adjudicating authority irrespective of the fact that he invoked the provision of STA lacks proper knowledge of its provisions and the mechanism devised for levy of sales tax, the entire sales tax regime is an evaluated tax system leviable on value addition at each stage right from import to sale and passed the burden of levied tax to and consumer . The tax payer pays notified tax at the time of import or purchase as contemplated in section 3 of the STA and use that in production / manufacture or sell in same state condition after value addition and files Sales Tax Return cum Payment Challan for the tax month on or before 15th Day of the next month under Section 26 ibid, through which he determine his tax liability under section 7, while deducting input paid by him at import stage, to which he is entitled under the said provision subject to the provision of Section 73 ibid. The word used in Section 7 is 'entitle', which according to Jowitt's Dictionary of English Law means "to give a right to". The law is thus giving a right to the appellant and availing of this right within stipulated period, if the output tax exceeds the input tax, the tax payers pays that along with return filed under Section 26 ibid and in case the input tax exceed to output tax, he claims refund in the monthly Sales Tax Return cum Payment Challan under Section 10 ibid. The statutory right of tax payer to claim input tax or adjustment against the output, tax is well supported under the provision of Section 10 of the STA. Resultant, it is immaterial that whether appellant import same state goods or raw material as he has to sell that after value addition and transforming into a distinct item and has to pay further tax on his sale as enunciated in the respective condition of SRO 1125(1)/201 1 dated 31.12.201 1, no question arise of evasion or short payment. In the given circumstances of the case the issuance of show-cause notice and pass ing of order-in-original in the instant case was not warranted at all under law. Rendering it void and ab-initio and as such of no legal ef fect.
13. What has been discussed hereinabove, particularly the interpretation of law, legal propositions and observations made thereon and to follow the ratio-decidendi observed by the Superior Courts, I set aside the order passed thereon, during the hierarchy of the customs being illegal, void and ab-initio, appeal is accordingly allowed with no order as to cost.
14. Judgment passed and announced accordingly .