SYED TANVIR AHMED, MEMBER TECHNICAL III.----The present appeal has been preferred against Order-in- Original No.751827 dated 20.03.2018 passed by the Collector of Customs (Adjudication), Karachi.
2. Briefly, facts of the case are that M/s. Diamond Fabrics electronically filed Goods Declaration No. KAPE-HC- 31144 dated 12.08.2017 and declared to contain Polyester Printed Fabric for Bed Sheet in Assorted Color and Design (Semi Finished) under PCT heading 5407.5400 at declared value of US $ 67682/-. The importer determined his liability of payment of applicable duties and taxes in terms of section 79(1) of the Customs Act, 1969. On 1st examination of GD KAPE-HC-31144-12-08-2017 the declared Polyester bed sheet fabric found woven furnishing fabric for sofa and curtains printed qty 671 rolls net weight 25610 kgs. On 2nd examination of said GD the declared goods were found Polyester Woven Furnishing Fabric for Sofa and Curtain (can have multiple uses) assorted color and designed net weight 25200 kgs approx. On the basis of examination report reveals that the found description is polyester woven furnishing fabric for sofa and curtain as against the declared description polyester printed fabric for bed sheet. The found goods are assessable @ US $ 6.80/kg as per VR as against declared description which is assessable @ US $ 2.80/kg as per data. The importer mis- declared the description to avoid higher value. The importer has deliberately concealed the description of the goods in order to take an attempt / opportunity for getting the goods assessed on suppressed value for evading legitimate amount of duty and taxes with mala fide intention.
3. A show-cause notice was issued and matter was adjudicated. The learned Adjudicating Officer vide Order-in- Original No.1089309 dated 19.03.2018 established the charges levelled in show-cause notice and offending goods were confiscated however an option was given to the importer to redeem the goods on payment of fine equal to 35% of the value of the offending goods subject to condition that same are otherwise importable as per Import Policy Order in vogue as prescribed under SRO 499(I)/2009 dated 13.06.2009 in addition to leviable duty and taxes thereon. A penalty of Rs.300,000/- (Rupees three hundred thousand only is also imposed on the importer and penalty of Rs.25000/- on the clearing agent.
4. The appellant being aggrieved with the above impugned order-in-original filed the instant appeal before this Tribunal on the grounds that the show-cause notice and consequent upon order is arbitrary without jurisdiction and without application of relevant provisions of the Act, 1969. The subject consignment was not released in respect of which it cannot be alleged as much less proven that any attempt for evasion of duty and taxes on account of payability in such regards neither envisaged nor prescribed under the law in respect consignment under import in terms of Section 79 of the Act, 1969. The customs have visually examined description of alleged goods to ascertain its description and have failed to get these examined through lab test and the same is the case of the Collector of Customs Adjudication who primarily appraised appellant's contention regarding lab test but on refusal from the PCSIR laboratory, he has failed to get it examined through physical test from any other laboratory without which the ascertained change in description of alleged goods to impose higher duty and taxes is illegal and unlawful. The appellant has imported 100% polyester fabrics for bed sheet falling under HS Code 5407.5400 whereas, the customs authorities has described these goods as "polyester woven furnishing fabric for sofa and curtain" said to have been falling under HS Code 5514.2200 and has resultantly enhanced its value from Rs.7,217,200/- to Rs.18,44,857/-. The customs have themselves acknowledged that alleged goods can have "Multiple Uses" even then they have assessed it at higher value by conflicting in its description thereof.
5. The imported goods as declared by the appellant falls under HS Code 5407.5400 instead of HS Code 5514.2200 as evident from the following nomenclature of these goods in question: HS Code Description HS' Code Description 54.07 Woven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of hearing 54.0455.14 Woven fabrics of Synthetic staples fibers, containing less than 85% by weight of such fibers, mixed mainly or solely with cotton, of a weight exceeding 170 grams 5407/5400 ---Printed 5514/2200 ----3-thread or 4- Thread twill including cross twill, of polyester staple fibers.
6. From perusal of above, it is revealed that the alleged woven fabrics of synthetic filament yarn is made of 100% polyester fibers falling HS Code 54.07 whereas woven fabrics falling under HS Code 55.14 is made up by weight of 85% polyester fibers, mixed mainly or solely with cotton but woven fabrics in the case at instance never contain any element of cotton therefore, the same fall under Chapter Heading 54.07 instead of Chapter Heading 55.14. This all could have been ascertained through physical lab test of alleged goods which has never been done without which the case is based on presumption.
7. The alleged GD contains woven printed polyester fabric instead of woven fabrics made up of 3-thread or 4- thread twill including cross twill of polyester staple fiber's therefore, it has to fall under HS Code 5407.5400 instead of HS Code 5514.2200. The element of printing is another factor to exclude it from HS Code 5514.2200.
Since no mis-declaration on the part of description of alleged goods is established, therefore, the provision of Notification SRO 499(I)/2009 dated 13-6-2009 is not applicable in the case. The alleged textile goods fall under Notification SRO 1125(1)/2011 dated 31.12.2011 is applicable in the matter at hand wherein goods useable as industrial input as imported by a manufacturer duly registered in sales tax is chargeable to sales tax at the rate zero percent and for the purpose of income tax also, it is chargeable at one percent. This fact is ignored that the appellant's registered status is manufacturer to whom zero percent of sales tax and one percent of income tax in terms of Notification SRO 1125(1)/2011 dated 31.12.2011 should have been applied. On such account impugned show cause notice and impugned order is illegal and unlawful.
8. Prior to imposing penalty, there has to be taken into consideration the profile of the importer and his line of business and relevant clause of the provision of section 156(1) of the Act, 1969. Indeed the clauses of section 156(1) defined the pitch of penalty and other actions but none of the clauses are mandatory in nature, it is left to the discretion of the adjudicating authority and the court to impose the penalty defined therein to the extent of "he" or "it" feel appropriate. The adjudicating authority is also empowered to let free the person / company with a warning only. Besides, fine imposed on total ascertained value of offending goods and not on its differential value by virtue of which fine is also imposed on duty and taxes already paid in respect of its declared value. To the extent of declared value at least, no mis-declaration is made therefore; no fine can be attributed in its respect and if at all it is otherwise to be imposed, it can be imposed on differential value and not on total value of alleged goods. The learned counsel for the appellant prayed that the ascertained value of the goods in question without any physical lab test and fine equal to 35% and penalty may kindly be vacated / remitted.
9. The departmental representative Mr. Rashid Ali, A.O. appeared and argued the case that the appellant has mis-declared the description and HS Code of impugned goods. On examinations it was found as woven furnishing fabric for sofa and curtains printed in rolls in assorted color and designs and fall under HS code 5514.2200, assessable US $ 6.80/kg as per VR as against the declared value as per data. The learned Adjudicating Authority has correctly charged and assessed the goods on correct value and duty and taxes along with imposition of redemption fine and penalty on importer and clearing agent on charge of mis-declaration of description and concealment of HS code as to evade actual duty and taxes. The learned DR prayed that the show-cause notice and impugned order-in-original issued and passed may be upheld in the interest of exchequer.
10. Arguments heard and record perused. Briefly Messrs Diamond Fabric imported fabric and filed Goods Declaration No.KAPE-HC-31144 dated 12.08.2017 and declared goods as "Polyester Printed Fabric for Bed Sheet in Assorted Color and Design (Semi Finished)" under PCT heading 5407.5400. Two examinations were conducted. On 1st examination, the declared Polyester Bed Sheet Fabric was found as Woven Furnishing Fabric for Sofa and Curtains, Printed fabric. On 2nd examination of said GD the declared goods were found as "Polyester Woven Furnishing Fabric for Sofa and Curtain (can have multiple uses) Assorted Color and Designs".
The department levelled two charges, one that the value was mis-declared and instead of declared value of US $ 2/80/kg, it should have assessed under Valuation Ruling @ US $ 6.80/kg. Secondly, the appellant claimed benefit of SRO 1125(1)/2011 but department declined to extend the benefit on the pretext that this is commercial consignment and shall be sold as such without any further processing, though the importer fulfills other conditions.
11. First we shall discuss the charge of mis-declaration of description and PCT. The description and PCT declared and ascertained are as under: HS Code Declared DescriptionHS Code Assessed Description 54.07 Woven fabrics of Synthetic filament yarn, including woven fabrics obtained from materials of hearing 54.0455.14 Woven fabrics of Synthetic staples fibers, containing less than 85% by weight of such fibers, mixed mainly or solely with cotton, of a weight exceeding 170 grams 5407.5400 ---Printed 5514.2200 ----3-thread or 4- Thread will including cross twill, Of polyester staple fibers.
12. From perusal of above, it is revealed that the impugned fabric of synthetic filament yarn was declared as made of 100% polyester fibers, falling under HS Code 54.07 whereas department assessed the woven fabric under HS Code 55.14 i.e., is made up of weight of 85% polyester fibers, mixed mainly or solely with cotton. The appellant contended that the woven fabric in the case never contained element of cotton, therefore, the same falls under heading 54.07 instead of heading 55.14. This all could have been ascertained through lab test of alleged goods which has never been done without which the case is based on presumptions.
13. The department was asked as to how they ascertained 85% polyester, on which DR stated that they marked a sample to Chaudry lab. On a query it was told by DR that the test was not possible in Chaudry lab. It was then sent to Customs House Laboratory which showed its inability to determine percentage of polyester. Then the sample was sent to PCSIR Lab which also regretted as they did not have the requisite facility. It is surprising that the declared description is 100% polyester, but the department determined the cloth as made of 85% polyester and 15% cotton when three laboratories declined to determine percentage of polyester due to lack of proper facilities. The customs staff determined percentage of polyester by feeling with hand and examining from naked eye. The DR was asked as to why sample was not sent to some government textile institute but he -could not give any reply. The department should have sent the sample to some textile lab or university where this expertise was available.
14. Even otherwise, the aforementioned core issue of the case has not been investigated by the respondent agency, even though, they have the power under section 166 of the Customs Act, 1969 to summon the person, give evidence and produce documents or things. Neither the present appellants nor their representative were summoned for evidence. The respondent also failed to issue any notice under section 26 of the Customs Act, 1969 for production of documents for providing or calling any information from the present appellants. It is the duty of the respondent to provide the evidence under such special circumstances for establishing their case, but on the contrary they failed to do so. Even the respondent agency nor their representative during hierarchy of the proceedings controverted the evidence. As such the subject impugned show-cause notice was issued without any specific allegation and charges attributed against the appellant, being so, are without any warrant of law. In view of the aforesaid legal infirmities in the show cause notice and subsequent order of the respondents fails a test of being in order and have no warrant under the legal frame work, as held by the superior courts in their Judgments. The Honourable Supreme Court of Pakistan in PLD 2005 (SC) page 842 Khyber Tractors v.
Government of Pakistan held that Courts are required to do justice between the parties in accordance with provision of law. It is elementary principle of law that if a particular thing is required to be done in a particular manner, it must be done in that manner, otherwise it should not be done at all" The Honourable Supreme Court further held in its Judgment 1987 SCMR page 1840 Central Excise and Land Customs v. Rahim Din "orders of adjudication, being ultimately passed on the ground, not mentioned in the show cause notice was probably illegal on the face of it".
15. In view of above, the declared description should be accepted in the absence of any valid laboratory test as the department has failed to properly conduct inquiry and decided the description on whims as department itself has accepted and stated in examination report that the fabric has multiple uses. The impugned goods therefore, does not fall under HS Code 5514.2200. The element of printing is another factor to exclude it from HS Code 5514.2200. No mis-declaration of description of the alleged goods is established. The DR was asked what misdeclaration was committed by the appellant, when declared description was accepted to the extent of "Polyester, Fabric, Printed, Assorted Colours, Assorted designs, Semi Finished. Only controversy is regarding its use, on which the department itself states in examination report that it has multiple uses.
16. Now we come to the question of SRO 1125(1)/2011. The impugned textile goods fall under Notification SRO 1125(1)/2011 dated 31.12.2011 as contended by the appellant. The SRO is applicable in this case as the goods are useable as industrial input as imported by a manufacturer duly registered in sales tax and is chargeable to sales tax at the rate zero percent and for the purpose of income tax, it is chargeable at one percent. This fact was ignored by the adjudicating authority that the appellant registered status is of "Manufacturer" to whom zero percent of sales tax and one percent of income tax in terms of Notification SRO 1125(1)/2011 dated 31.12.2011 should have been considered and discussed.
17. It is surprising that the DR conceded that the appellant is a Manufacturer and also owned Manufacturing Bond, which means they had a proper manufacturing facility. They are registered as 'manufacturer' of textile sector in Income Tax and Sales Tax departments. When asked the DR on what basis their claim was rejected, he stated that the department apprehends that the fabric shall be sold in the market as such, so it has been considered and taken as commercial import. It was further asked that whether the cloth is fully manufactured and does not need any processing, on which DR stated that this is Gray Fabric and need further proceeding.
The contention of. the appellant carries weight that they fulfilled every condition and all other importer of same category are being given this facility, but they are being denied on account of the apprehensions. When the appellants have fulfilled all condition of the SRO and goods needs further processing, the facility of SRO 1125(1)/2011 cannot be denied on account of apprehension of the department that thee is a likelihood that goods shall be sold in the market. The DR stated that they denied the benefit as they received complaints of a number of factories which are misusing the facility. The DR was asked whether IRS sent audit report or complaint was received regarding the appellant, on which he stated that no specific report was received regarding appellant but the department apprehends that it will be misused in future. It is a case of sheer discrimination. The department is allowing benefit of SRO 1125(1)/2011 on discretion and without following any specific criteria. Generally the criteria is that if an importer is manufacturer in NTN and STRN of five sectors and fulfilling conditions of SRO, he is given the benefit. In this case no plausible reason was given except future offence of commercial use which department anticipates that manufacturer will commit. On this account only impugned show-cause notice and impugned order is illegal and unlawful.
18. The said treatment given to the appellant is nothing more than a partial and differential treatment. A person placed at the same pedestal cannot be treated differently as it would constitute a negation of Articles 4 and 25 of Constitution of Islamic Republic of Pakistan. The Honourable High Court of Sindh in its reported judgment 2002 PTD 976 held that "vacating the show-cause notice in one case and taking action against another person in similar situation, is amount to discrimination which is hit by Article 25". In reported judgment 2002 SCMR 312 and 2009 PTD 1507 the Hon'ble Superior Courts have observed that "there exists no power to target incidence of tax in such a way that similarly placed person be dealt not only dis-similarly, but discriminatingly". Whereas, in reported judgment 2005 SCMR 492 the Hon'ble Supreme Court held that "A facility allowed to someone and denied to other is discrimination". The Apex Court further held in reported judgments 2010 SCMR 431 that: "Doctrine of equality, as contained in Art. 25 of the constitution,enshrine golden rules of Islam and states that every citizen, no matter how high so ever must be accorded equal treatment with similarly situated persons--- State may classify persons and objects for the purpose of legislation and make laws applicable only to persons or objects within a class---In fact all legislation involve some kind of classification whereby some people acquire rights or suffer disabilities whereas others do not--- What however, is prohibited under principle of reasonable classification, is legislation favouring some within a class and unduly burdening others---Basic rule for exercise of such discretion and reasonable classification is that all persons placed in similar circumstances must be treated alike and reasonable classification must be based on reasonable grounds in given set of circumstances but the same in any case must not offend spirit of Article 25 of the Constitution."
19. Now we come to the fine and penalty imposed by the learned adjudicating authority. It is a settled principle that where the evasion of duty is not willful the imposition of penalty is not warranted. Imposition of penalty is illegal as decided by the Honourable Supreme Court in respect of Messrs Humayun Ltd v. Pakistan and others as reported in PhD 1990 SC 96, wherein it was held that "where the evasion of duty is not willful the imposition of penalty is illegal". In the instant case, there is no mis-declaration of ,description. Even if contention of the respondent is accepted regarding wrong PCT, the charge of wrong PCT does not fall in mis-declaration as declared by the higher courts. The department was asked what in wrong or mis-declaration in the GD's description whether the fabric is not of polyester or printed or of assorted colour and design or semi finished?
The DR stated that this description is true but it is for curtains and should have applied value as given in Valuation Ruling. It is also a settled principle that no charge of mis-declaration on account of valuation can be framed merely on the basis of Valuation Ruling. As stated by the higher courts that Valuation Ruling is an average value and estimation of value. In SRO 499(1)/2009 it is clearly mentioned that redemption fine can only be imposed where the value is determined "on the basis of direct evidence". The learned adjudicating authority did not discuss the aspect of valuation and department did not controvert the evidence place on record like, invoice, contract, L/C etc. They simply applied Valuation Ruling by determining classification which is not sustainable.
The impugned order of the adjudicating authority is also violative of the ruling of Superior Courts given in identical cases, wherein it is clearly held that penal provision cannot be applied as a routine and for application of same higher degree of proof regarding mens-rea / willful default / involvement is required otherwise application of penal provision is without lawful authority which is absent in the subject case and have no legal value. In cases of PLD 1996 Khi. 68, PTCL 1995 CL. 415, PLD 1991 SC 963, it was held that "penalty proceedings are criminal in nature requiring a higher standard of proof and can bear the stamp of legality only if independent and cogent evidence is led". The Hon Supreme Court decided in 1995 SCMR 1345 and 1992 SCMR 196" that no-body is to be punished unless proved guilty on the basis of true and reliable evidence." In the absence of any material or corroborative evidence the prosecution is unable to prove mens-rea and guilt of Appellant. In this case no lab test was conducted and three labs declined to determine percentage of polyester but the respondent determined on whims by naked eye.
20. The Lahore High Court has held in Writ Petition No.15822 of 2008 , 2009 PTD 281 in case of Messrs Sunny Traders v. Federation of Pakistan and 4 others that on the basis of a Valuation Ruling, provisions of Section 32 cannot be invoked.
21. The statutory duties have not properly been performed by the department and are found transgressional from the statutory provisions of law, and also against constitutional obligations vested, under Article 4 of the Constitution of Islamic Republic of Pakistan, every citizen enjoy the protection of law and to be treated in accordance with law is in alienable right of every citizen, wherever he may be, and every other person for the time being within Pakistan, clause (a) of Sub-Article (2) that no action detrimental to the life, liberty, body, reputation or property of any person shall be taken except in accordance with law. In the instant cases the proceeding initiated by the respondent are in "unlawful manner" in negation of Article' 4 and the judicial principle laid down from time to time by the Superior Court even against the requirements of Customs Act, 1969. It means, according to the accepted form of legal process and postulates, a strict performance of the function and duties laid down by law are required to be followed by the respondents. It is in this sense that, an action which is mala fide or colorable is not regarded as action in accordance with law. Similarly, action taken upon extraneous or irrelevant consideration is also not an action in accordance with law. In this case the department did not conduct lab test and despite the fact that three labs declined to test and determine percentage of polyester, the respondent determined 85% polyester and 15% cotton by naked eye and on the basis of this determination applied Valuation Ruling. Action taken without proper application of mind by the quasi judicial authorities, would also not qualify as an action in accordance with law and would therefore, have to be stuck down as being action taken in unlawful manner. A person acting in pursuance of a statute cannot be set to be acting bona fide, if he has no reasonable ground for believing that the statute justifies him in what he does. If the case, therefore, is one where there are no grounds or the grounds are such that no reasonable person would have acted on the supposition that he was acting under the authority of statute, then it is a case of the court to look into it. In order to thwart, the commission of unlawful act in derogation of the provision of the statute the Hon'ble Supreme Court of Pakistan in reported judgment 2002 PTD 2457 held that " the thing should be done as they are required to be done, or not at all" and in PLD 1971 Supreme Court 61 "neglect of plans recruitment of an absolute statutory enactment prescribing how something is to be done, would invalidate thing being done in some other manner" and PLD 1973 Supreme Court 236. The Hon'ble Apex Court in 2001 SCMR 838 and 2003 SCMR 1505, held that "while considering the impact of violation or non-observance of the method prescribed by law for doing an act in a particular manner or mode, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted. The same observation has been made by the Hon'ble Supreme Court of Pakistan in the Civil Petition filed by Director General of Intelligence and Investigation and others v. Messrs Al-Faiz Industries (Pvt.) Ltd and others reported as 2006 SCMR 129 "if the law had prescribed method for doing of a thing in a particular manner, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted."
22. By getting the strength, what has been stated and observed herein above particularly the interpretation of law and legal prepositions in the light of prescribed law and to follow the judgments of Superior Courts along with our own additional observations made thereon, we are of the considered view that, the proceedings in the subject case are infested with inherent legal infirmities and substantive illegalities, which tantamount to patent violations of prescribed law, and that too, in utter disregard of principle of natural justice, therefore, impugned order passed is hereby declared null and void, ab initio as such set aside. The respondents are also ordered to issue delay and detention certificate to the appellants. The appeal is accepted accordingly with no order as to cost.
23. Judgment passed and announced accordingly.