ABDUL JABBAR QURESHI, MEMBER JUDICIAL-I. By this judgment, I intend to dispose or Customs Appeal bearing No.K-7119/2021 directed against Order-in-Original No.1665757 dated 15.04.2021 passed by learned Additional Collector of Customs (Adjudication-II). Karachi.
2. Briefly, facts of the case are that the appellant electronically filed Goods Declaration No.KAPE- HC-98119-05-12-2020 and declared to contain "RESIDUE SOLVENT" under PCT Heading 2710.1999 at a declared invoice value 18315 USD. The importer determined his liability of payment of applicable duties and taxes in terms of Section 79(1) of the Customs Act, 1969. In order to check as to whether the importer has correctly paid the legitimate amount of duties and takes, the under reference GD was selected for scrutiny in terms of Section 80 of the Customs Act, 1969 and was referred to Examination for confirmation of description, quantity and other physical attribute of the goods. For ease of reference examination report is re-produced as under:- THIS REPORT PERTAINS TO ONE CONTAINER NO: TGHU3679090 KAPE-HC-98119-05- 12-2020 NO COMMERCIAL INVOICE FOUND INSIDE THE CONTAINER, GOODS EXAMINED AND DETAILED AS UNDER, DEC DESCRIPTION: RESIDUE SOLVENT PACKED IN FLEXI BAG, NET WT: 18150 KGS APPROX, BRAND AND ORIGIN: NOT SHOWN, NO SPECIFICATION FOUND ON GOODS REP/SEALED SAMPLES ARE BEING FORWARDED TO CH LAB FOR TEST FOR CONFIRMATION OF ACTUAL DESCRIPTION, PCT AND ALL OTHER ASPECTS. CHECKED 100% WEIGHT AT PICT WEIGHBRIDGE VIDE PICT SLIP NO: 968049 DATED: 06-DEC-2020-FOUND CARGO WEIGHT: 18,250 KGS. GROUP IS REQUESTED TO CHECK ALL LEGAL ASPECTS INCLUDING CLASSIFICATION, VALUATION, IMPORTABILITY AS PER IPO AND IPR CONDITION IN VOUGE (IMAGES ARE ATTACHED).
CONTAINER # TTNU2627493 KAPE-HC-98119-05-12-2020, THIS REPORT PERTAINS TO SUBJECT CONTAINER ONLY NO COMMERCIAL INVOICE FOUND INSIDE THE CONTAINER, GOODS EXAMINED IN THE LIGHT OF SCANNED DOCUMENTS AND DETAILED AS UNDER, DESCRIPTION: RESIDUE SOLVENT IN FLEXITANK, NET WT: 18480 KGS APPROX, BRAND AND ORIGIN: NOT SHOWN, AS DESIRED BY THE GROUP, R/SAMPLES OF 03 LARGE BOTTLES ARE BEING DRAWN AND FORWARDED TO CH GROUP FOR FURTHER SUBMISSION, CHECKED 100% WEIGHT AT PICT WEIGHBRIDGE VIDE PICT SLIP NO: 969978, DATED: 12-Dec- 2020, AND FOUND CARGO WEIGHT: 18,580 KGS. GROUP IS REQUESTED TO CHECK ALL LEGAL ASPECTS INCLUDING CLASSIFICATION, VALUATION, IMPORTABILITY AND ALL OTHER ASPECTS AS PER IPO AND IPR CONDITION IN VOUGE (IMAGES ARE ATTACHED AS INTEGRAL PART OF ER).
3. The examination officer had sent representative samples of the goods to CH Lab and CH Group for confirmation of Actual Description, PCT, and all other relevant aspects. For ease of reference CH Lab report is re-produced as under:-- Receipt: 127587 Report: the sample on test gave the following result;
1. Yellowish liquid.
2. Characteristic odor.
3. Insoluble in water
4. Density: 0.806 g/cm3
5. Aniline pint; 65 C
6. Distillation: IBP: 175 C
7. 10%: 190 C
8. 50%: 215 C
9. 90%: 280 C
10. Final :320C
11. Residue: 0.5% approx.
12. Volatile: 0.5% approx.
4. In view of the above test result, the sample is found to consist of mineral hydrocarbon essentially of aliphatic type. Description / nature cannot be ascertained. CH Lab report was not conclusive with regards to description, and classification of goods, therefore, in light of recommendations of CH Lab, representative were forwarded to H.E.J Lab for confirmation whether the subject goods are "Petrol" or "High Speed" or "Fuel" or otherwise. H.E.J Lab tested the samples against the specifications of following standards (1) Petrol (Motor Gasoline). PS: 1430-1999, 2) High Speed Diesel (HSD). PS: 344-2009, 3) Fuel Oil. ASTM D396-20. H.E.J Lab vide Para 03 of its Sample Analysis Report dated 02.12.2020 interpreted the results of tests as that the given sample is comparable with the specifications of ASTM D-396-20 (Fuel Oil). In the light of H.E.J. Lab report, the subject goods are correctly classifiable under 2710.1949 instead of 2710.1999, According to Serial 02, Part II of Appendix B to Import Policy Order, 2020 fuel oils are importable by approved oil marketing companies. The importer M/s. JADOON TRADING COMPANY is not an Oil Marketing Company therefore the importer tried to seek clearance of "Fuel Oil" without being Oil Marketing Company, by mis-declaring the description of the goods as "Residue Solvent" This act of the importer attracts the violation of Section 16, of the Customs Act, 1969 punishable under clause (9) of Section 156(1) of the Customs Act, 1969.
8. This act of the importer also attracts the violation of Sections 32(1), (2), 79(1) of the Customs Act, 1969 and Section 33 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, punishable under Clauses (1)(14) of Section 156(1) of the Customs Act, 1969, read with SRO 499/2009 dated 13/06/2009 as amended from time to time.
5. A show-cause notice issued and the matter was adjudicated. The Learned Additional Collector of Customs (Adjudication-II) Karachi has passed an Order-in-Original No.74/2019 dated 30.06.2019 as under:-
19. Analysis of case record along with examination of the lab tests in addition to other relevant documents produced to me indicates that the respondent has not been able to satisfy the department with regard to the actual description, specifications and classification of the goods, It is on record that the department for determination of the exact nature of the goods had referred the samples of the impugned goods to the Custom House Lab and subsequently after the receipt of the HEJ has held that the impugned good are "Fuel Oils" and not the 'Residue Solvent" as declared by the respondent. The learned consultant during the course of Proceedings, has also failed to conclusively prove that the impugned goods do not fall under the category of Fuel Oil but rather these are Residual Oil. He has riot produced corroborative documents or a concrete evidence to show that the impugned goods are not "Fuel Oils" but the "Residue Solvent". The raising of queries and observations along with submissions of detailed rejoinders on a report received already from a reputable lab like HEJ is the prerogative of the respondent but it would have been in fitness of the things, if the learned consultant on behalf of the importer should have produced the valid and concrete evidences substantiating empirically and objectively the exact nature of the goods negating the departmental stance. The failure to present objective criterion or cogent reason and plausible rebuttal only strengthens the stance of department. On the contrary, the DR apart from the findings of the HEJ Lab, has come up with the explanation that according to the international standards of the classification of the goods the impugned goods are Fuel Oil as ascertained by the HEJ Lab vide Para 03 of is Samples Analysis Report dated 02.12.2020 holding that the given sample is comparable with the specifications of as ASTM D-396-20 (Fuel Oil). He also remarked that all other physical and chemical characteristics and properties of the impugned goods spell out the same to be Fuel Oil. In the light of above facts and circumstances of the case, the undersigned concurs with the viewpoint of the department that subject goods are correctly classifiable under 2710.7949 instead of 27.10.1999 and according to Serial 2. Part 11 of Appendix B to Import Policy Order, 2020, these can be imported by only approved Oil Marketing Companies. Since the importer is not an Oil Marketing Company, thus, he tried to seek clearance of "Fuel Oil" by mis-declaring the description of goods are "Residue Solvent" as import of Fuel Oil is otherwise subject to certain conditions.
20. The fore-going discussion leads me to conclude that the entire charges of mis-declaration of the description of the goods and the classification along with the importing restricted goods according to Serial 2, Part II of Appendix B to Import Policy Order, 2020 as levelled in the show- cause notice stands established against the importer. Apart from the mis-declaration of description and classification, the offence of the importation of restricted item has also taken place as importer has violated the condition of IPO importing restricted goods invoking the provisions of sections 16 and 32 of the Act, 1969. I, therefore, order that the offending goods are involved in the contravention report are out-rightly confiscated under the relevant clause 9 of section 156(1) of the Customs Act, 1969. A penalty of Rs.200.000/- (Rupees Two Hundred Thousands Only) is also imposed on respondent importer in terms of clauses (1), (9), (14) of Section 156(1) of the Customs Act, 1969. The case is dispose in above terms.
6. Being again aggrieved with aforesaid impugned order passed by learned Additional Collector of Customs (Adjudication-I) Karachi the appellant filed the instant appeal before this Tribunal on the grounds:- A. That impugned goods were imported with declared description of Residue Solvent PCT 2710.1999 whereas the respondent held it is Fuel Oil PCT 2710.1949. Thus basically it is case of alleged mis- declaration of PCT heading.
B. That the Superior Courts of Pakistan have time and again decided that difference of opinion of PCT between the declared PCT and ascertained PCT is matter of mere interpretation and difference of opinion interpretation does not entail any charge of mis-declaration. Reliance is placed on Collector of Customs v. Yamaha Motors Pakistan (Pvt.) Ltd. (SCRA. 2187 of 2015).
C. That as regards merits of the case it is submitted that the impugned lab report does not depict or specify which fuel oil the impugned product is. Further, the lab report reflect the impugned product is mixture of aliphatic and aromatic hydrocarbons but neither specify the aliphatic or aromatic compounds nor reflect the carbon atom Chian size in these compounds. It is pertinent to mention the carbon chain of aliphatic or aromatic compound also determine density, viscosity flash point, pour point, and boiling range.
D. That the term "fuel oil" depicts six different fuel oils. That department failed to specify the number of fuel oil. That under ASTM-D 396 there are six divergent fuel oils and all are classified in different HS headings. Therefore by not specifying the exact number or, grade of fuel oil the lab reports and in show-cause notice and Order-in-Original seems to be based on assumption only which could not be made the legal basis any show-cause notice or Order-in-Original.
E. That neither the Table of the ATM-D 396 has been examined carefully nor the footnotes under the table have been perused. Therefore the conclusion drawn by the learned 'department neither' complies with specific product description / specification of any fuel oils in ASTM-D 396 nor it was based on basic scheme of classification or HS based on GIRs.
F. That GIRs play pivotal role in HS classification and GIR Rule 1 emphasizes the importance of terms of heading and similarly GIR, Rule 6 underscores the importance of Terms of sub-heading for this purpose, The learned department relied upon terms of reference of sub-heading 2710.1940 (--)
Fuel Oils under which three further sub-heading exist at (----) four dash level i.e. 2710.1941 (Furnace Oil) 2710.1942 (Petroleum top naphtha) and 2710.1949 (other), respectively. The department classified the impugned goods under PCT 2710.1949 considering it as "Fuel Oil", whereas the impugned product descends from three dash (---) PCT 2710.1990 and- correctly falls in Classification under PCT 2710.1999 on the following grounds:-
(i) That under standard ASTM-D 396, the table reflect six fuel oils. All those six fuel oils do not fall under PCT 2710.1940 (---). The six fuel oils are Fuel Oil Nos. (1), (2), (3), (4), (5) and (6).
(ii) The fuel oils are fractions obtained from petroleum distillation, either as a distillate or a residue.
Broadly speaking, fuel oils any liquid fuel that is burned in a furnace or boiler for the generation of heat except oils having a flash point of approximately 42C (108 F) and oils burned in cotton or wool-wick burners. Fuel oil is made of long hydrocarbon chains. particularly alkanes, cycloalkanes and aromatics. The term fuel oil is also used in a stricter ,sense to refer only to the heaviest commercial fuel that can be obtained from crude oil, i.e., .heavier than gasoline and naphtha, Whereas the density, viscosity, and flash point of the impugned product do not confirm that it is heavier fraction.
(iii) Grade of Fuel Oil: The boiling point and carbon chain length of the fuel increases with fuel oil number, Viscosity also increases with number, and the heaviest oil must be heated for it to flow.
Price usually decreases as the fuel number increases.
(a) Number 1 fuel oil is a volatile distillate oil intended for vaporizing pot-type burners. It is the kerosene refinery cut that boils off immediately after the heavy naphtha cut used for gasoline.
Former names include: coal oil, stove oil and range oil.
(b) Number 2 fuel oil is a distillate home heating oil. This fuel is sometimes known as Bunker-A obtained from the light gas oil cut. Gas oil or diesel refers to the original use of this fraction in the late 19th and early 20th centuries -- the gas oil cut was used as an enriching agent for carburetted water gas manufacture.
(c) Number 3 fuel oil was a distillate oil for burners requiring low-viscosity fuel. ASTM merged this grade into the number 2 specification.
(d) Number 4 fuel oil is a commercial heating oil for bummer installations not equipped with preheaters. It may be obtained from the heavy gas oil cut.
(e) Number 5 fad oil is a residual-type industrial heating oil requiring preheating to 77-104 C (171- 219 F) for proper atomization at the burners. This fuel is sometimes known as Bunker B. It may be obtained from the heavy gas oil cut, or it may be a blend of residual oil with enough number 2 oil to adjust viscosity until it Can be pumped without preheating.
(f) Number 6 fuel oil is a high-viscosity residual oil requiring preheating to 104-127C (219-261F): Residual means the material remaining after the more valuable cats of crude oil have boiled off.
The residue may contain various undesirable impurities, including 2% water and 0.5% mineral soil.
This fuel may be known as residual fuel oil (RFO), by the Navy specification of Bunker C, or by the Pacific Specification of PS-400.
(g) That following fuel oils does not full under PCT 2710.1940 (---) of Pakistan Customs Tariff.
Whereas fuel oil (1) Kerosene attract PCT: 2710.1911, fuel oil (2) Diesel attract PCT 2710.1931, fuel oil (3) furnace oil attract PCT 2710.1941, fuel oil (4) Petroleum Top attract PCT 2710.1942, fuel oil (5) other and fuel oil (6) other PCT attract PCT 2710.1949. Therefore it is confirmed that fuel oils as described in ASTM-D 396 and fuel oil described under PCT .2710.1940 (---) of Pakistan Customs Tariff are necessarily not the same. Hence when HEJ lab report refers to comparability of the impugned product with Fuel oil, that does not mean it is referring to fuel oils of Pakistan Customs Tariff under PCT 2710.1940 (i.e. 2710.1941, 2710.1942 and 2710.1940). Rather reference in the lab report was to Fuel Oils as mentioned in the Table of ASTM-D 396. Therefore conclusion drawn by the department that impugned product is fuel oil of PCT 2710.1949 is ill conceived, based on assumption reflect a paucity of perception of fuel oil in Pakistan Customs Tariff v. ASTM-D 396.
G. That impugned product is Petroleum refining fraction of Chapter 27 and is not covered in any of the above headings / sub-heading therefore it qualifies classification in the basket heading 2710.1999, where it was declared by the Respondent. Being product of PCT 2710.1999 it is not hit by serial No. 2 of Part II of Appendix B of Import Policy Order in vogue or by the section 156(1) 9 of the Customs Act, 1969.
H. That the Appellant has also submitted a request for a more elaborate 11E1 report which may encompass the following question:7] The percentage of Aliphatic Hydrocarbons and Aromatic Hydrocarbons may be indicated along with length of carbon chain. (ii) Spectrographs may be created to confirm whether the sample is comparable with spectrum of "Petroleum Top Naphtha", "Furnace Oil" or any similar formulation on basis of length of carbon chain present in it.
1. That unfortunately the department did not rise to the occasion to find the truth in the light of above questions and relied on its defective premise held that impugned goods are fuel oil No. (1) whereas the ASTM D-396 clearly farmarks the characteristics of fuel oil No. (I) under three distinct categories and the impugned products is not comparable with none of that, therefore does not fall under description of fuel oil under PCT 2710.1949 as held by the department.
7. I have examined the record of the case carefully and heard the arguments of the rival parties.
The case hinges on the sole point whether the imported goods were mis-declared by the appellant in respect of description or PCT heading and whether the imported goods were restricted in terms of serial No.2, Part II of Appendix B to Import Policy Order, 2020. The department built its case on the basis of Test Report issued by the HEJ Laboratory of Karachi University dated 16.12.2020 which vide para (3) in the "interpretation" column reflects "3. Interpretation The given sample of "Residue Solvent" was tested according to your query against specification of Petrol (Motor Gasoline) PS 1430-999. High Speed Diesel (HSD) PS: 344-2009 and ASTM D-396-20 (Fuel Oil) the results showed that the given sample is comparable with the specification of ASTM D-396-20 fuel oil. Moreover, the chemical nature of the given sample is complex mixture of aliphatic and aromatic hydrocarbons".
On basis of this interpretation the department ascertained the description of goods as "Fuel Oil"
(PCT 2710.1949) as against declared description "Residue Solvent" (PCT 2710.1999). The counsel of the Appellant raised serious objections on the Test Report that:- i. Department did not ask the lab to conduct test and ascertain the description of the goods rather they asked the lab to confirm whether the sample was Petrol, High Speed Diesel or fuel oil ii. The Lab result shows that sample was tested under standard ASTM-396 and was found "comparable" with specification of "Fuel Oil" iii. The test report always confirm the sample to be "compliant" and not depict "comparable" which is vague term iv. That under ASTM standard 396 under which the sample was tested, depict six type or fuel oils having number from fuel oil number 1 to fuel oil number 6 v. The report is silent to which fuel oil the sample was "comparable" amongst the different six fuel oils whereas each fuel oil from number 1 to number 6 has different specifications like flash point, viscosity, density, pour point vi. The Lab test report also depicted vaguely that sample was mixture of Aliphatic and Aromatic Hydrocarbons whereas neither the %age of Aliphatic nor of Aromatic Hydrocarbons was shown beside non-mentioning the names of the these compounds vii. The lab report also did not show any spectrograph for the impugned sample to exactly confirm the description of the sample.
8. The counsel of the Appellant pleaded that these flaws in the lab test report were also pointed out before the learned Adjudication officer who did take cognizance of the matter and sent a letter vide No.C.No.GD.No.KAPE-HC-98119/Jadoon Trading Company/2020 dated 11.01.2021 to the department to get the feedback on the above objections. However, the department did not respond to the said letter and the Order-in-Original was issued without addressing the very serious questions which have rendered the test report legally void to ascertain any specific description of the impugned goods.
9. I have critically analyzed the Order-in-Original which vide para (17) do reflect the serious objections of the importer on the Test Report. The record shows that Adjudication Authority registered the Importers objection, and sent them to the case referring department on 11.01.2021 for their radressal. The Adjudicating Authority waited upto 15.04.2021 i.e for 94 days but could not get any reply from the department. This state of affairs reflect that either the Respondent / department had no rational answer to the Importer's objections on the Test Report or the department was not interested in pursuing its case properly. The Adjudicating Authority thus relying on the Test Report which was not based on very sound footings, issued the show-cause notice and then the instant Order-in-Original. It is well established legal principle that issuance of Show-Cause Notice is not a causal correspondence rather it is serious business as held by the Honorable High Court vide Cartex v. Collector (2013 PTD 1536) wherein Honorable High Court held "Show-cause notice is a foundational document which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. It is the narration of facts in the Show-Cause Notice along with the supporting evidence which determines the offence attracted in a particular case. Show-cause notice is not a casual correspondence or a tool or license to commence roving inquiry into the affairs of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the department against the taxpayer". The Honorable Lahore High Court in STR No. 33/2005 (WAK v: Collector) has observed as follows; "(i) Mere allegation that a particular provision of law has been breached is not enough. The show- cause notice must be specific and should not be couched in general terms. It should contain the essential ingredients necessary to show infarction of law.
(ii) The grounds or reasons must be explicitly set out. The show-cause notice carrying the defect of vagueness may not stand the test of judicial scrutiny.
(iii) A flagrantly discrepant show-cause can rebound on the entire prosecution" case and can damage it extensively.
(iv) A show-cause notice that is issued on a wrong legal presumption is totally unlawful.
Superstructure raised on wrong foundation remains detective and whole of it crumbles on identification of the said detect."
10. Whereas the record of the case shows that no proper test was ever conducted to ascertain the exact nature of the impugned goods address the dispute. I have noted that the HEJ lab report was not sought to ascertain the description or nature of the impugned sample rather a reference vide No. C. No. GD. No. KAPE-HC-98119/Jadoon Trading Company/2020 dated 11.01.2021 was sent to HEJ lab to know whether sample was petrol, diesel or fuel oil. It is clear that no specific number of fuel oil from number 1 to number 6 was ever mentioned in the query of the department. This irresponsible handling of the matter resulted into a very unspecific report which neither tells the %age of Aliphatic and Aromatic Hydrocarbons in the sample nor specific the grade or number of fuel as per ASTM D-396. This unspecific and vague Test Report became the basis for issuance of the impugned show-cause notice which was equally void being based on the vague and sketchy lab report as the legal enforceability and the jurisdictional validity of a Show-Cause Notice stems from its content, i.e., the facts supported by tangible evidence referred to in the show-cause notice and not from cosmetic showcasing of the statutory provisions.
11. That the superior courts have time and again issued verdicts on defective and assumptive show-cause notice, which always result into equally Order-in-Original or any other super structure like Order-in-Appeal.
12. The record also shows that respondent / department at the stage of adjudication submitted in writing that impugned sample on basis of. Lab report was Fuel Oil No. 1. Whereas, the counsel of the appellant controverted this assertion by referring to technical Memorandum ERL, MESA-17 "Chemical and Physical Properties of Refined Petroleum Products" issued by the Department of Commerce, USA. The said Memorandum vide page (8) reflects that Fuel Oil number 1 is actually "Kerosene". If the impugned goods were Kerosene the department should have pleaded the case on basis or PCT 2710.1911 meant for Kerosene, however, the department contested the case at adjudication stage as well before this Tribunal asserting that impugned goods fall under PCT 2710.1949 which otherwise is not supported by any evidence. The Departmental Representative was asked to explain the self-contradictory position of show-cause notice, however, he had no answer to it. I am constrained to hold that impugned Order-in-Original was passed without ascertaining the facts thoroughly hence the same has host of legal infirmities embedded in it. The Honorable Supreme Court vide PLD 2008 SC 663 "It is well settled that when the basic order is without lawful authority and void ab initio, then the entire superstructure raised thereon falls to the ground automatically as held in Yousaf Ali v. Muhammad Aslam Zia (PLD 1958 SC 104)" I am of the view that these case laws squarely apply to the instant case which has resulted from an unsustainable, sketchy, vague and non-conclusive self conflicting show-cause notice.
13. Therefore, I hold that neither the impugned HEJ Lab report nor the show-cause notice hold any legal ground therefore the resulting superstructure in shape of Order-in-Original built on these void foundations has also no legal standing. Therefore, I hold that department could not substantiate its case and charges against the Appellant for contravention of sections 16, 32(1)(2), 79 are not proved. The counsel of the Appellant also submitted a copy of an evidential GD No. KAPE-HC-68288 dated 26.10.2020 wherein identical goods with same description from the same exporter with exactly same specifications and same Certificate of analysis were cleared by the department under declared PCT 2710.1999 whereas the instant consignment has been withheld on presumptions. The impugned orders are discriminatory and violative of principle of equal treatment before law. In view of the above deliberations, it is clear that the appellants have not indulged in any violation of Import Policy Order, 2020 or any willful mis-declaration. Accordingly, it is held that charge of violation of section 16 and mis-declaration in terms of section 32(1)(2) of the Customs Act, 1969 against the appellant are based upon presumption and faulty evidence. On the basis of above I declare the impugned Order-in-Original of no legal significance and is therefore held to be void and is withdrawn. The Appeal is disposed of accordingly. The impugned goods shall be assessed under PCT 2710.1999 and released against payment of leviable duties and taxes and Delay and Detention Certificate may also be issued to the importer for which he is entitled.
14. This order consists of ten (10) pages and each page bears my initials and office seal.