ABDUL JABBER QURESHI, MEMBER JUDICIAL-I. By this order, we dispose of Customs Appeal No. K- 722/2017 filed by the Appellant against Order-in-Revision No.329/2017 dated 14.04.2017 passed by Director General, Directorate General of Valuation by rejecting the revision application, while maintaining Valuation Ruling No. 1000/2016 dated 22.12.2016 issued by Director, Directorate General of Valuation, through which value of Chewing-gum brand Trident various flavours (serial number 12 of the VR @ US $ 9.00/Kg) and Chewing-gum brand Trident sugar free various flavours (serial number 13 of the VR @ US $ 11.O0/Kg) falling under PCT 1704.1000 were determined.
2. The Director Customs Valuation issued Valuation Ruling No.1000/2016 dated 22.12.2016 under Section 25A(1) of the Customs Act, 1969, determining value of Chewing-gum all origin under subsection (9) of Section 25 of the Customs Act, 1969. Being aggrieved applicant filed Revision Application under Section 25D of the Customs Act, before the respondent, through which the determination of value of Chewing-gums all origin Trident Brands was disputed and the Respondent was requested by the appellant, to declare the said Ruling to the extent of serial numbers 12 and 13 of VR contrary to the provision of Section 25 of the Customs Act, 1969. The Respondent disagreed with the contention of the appellant and passed Order in Revision dated 14.04.2017, through which revision application was rejected. The order reads as under; "Hearing in this cases were fixed on 09.02.2017 and 30.03.2017, Mr. Qasim Qayyum and Mr. Musheer ul Islam represented M/s. IBL operation (Pvt.) Ltd. appeared and contended that customs values of chewing-gum Wrigley's brand extra various flavours mentioned at S. Nos. 01 and 02 have been determined without any logical grounds. They insisted on accepting their transaction values at US $ 10.70/Kg and US$ 15.88/Kg against US $ 12.00/Kg and USS 17.00/Kg respectively for the subject two items of the impugned valuation ruling which are very close to the values determined vide impugned valuation ruling. They also produced supportive document in this regard. Therefore their viewpoint is acceptable and the Director, Valuation, Karachi may proceed further in the matter in accordance with law In respect of these two items only. Their petition is disposed of accordingly.
Mr. Yasir Iqbal, Mr. Adnan Aftab, Mr. Ali Baig and Mr. Khalid Siddique represented M/s. Modeles International Pakistan, They reiterated the same arguments as already given in their petition and written submission. The representatives of M/s. Modeles further stated that they are the sole distributors of Trident brand chewing gums and are introducing the said product in the market and that the import price of their products should be approx. US$ 5 per Kg. However they could not substantiate their statement. The departmental representatives explained in detail the valuation methodologies adopted by them to arrive at the customs values of Trident brand chewing gums determined vide the impugned valuation ruling. In support of their contention they presented various details of their valuation exercise / working. The departmental representative further stated that the Customs vales were determined by taking into account the current prices prevailing in market. Therefore, the petition by M/s. Mondelez International Pakistan is hereby rejected"
3. Being aggrieved with the Order-in-Revision No.329/2017 dated 14.04.2017 passed by Director General, Directorate General of Valuation, Karachi, the appellant has filed aforesaid appeal under Section 194A of the Customs Act, 1969 on the facts and grounds that the Appellant is a company incorporated under the Companies Ordinance, 1984 (formerly known as Kraft. Foods Pakistan Limited), and is a subsidiary of Mondelez International Inc. which is a world leader in biscuits, chocolate, gum, candy and powdered beverages, and manufactures well-known brands such as Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolate; and Trident gum.
The Appellant is a market leader in Pakistan in chocolate and powered beverages with strong brands such as; Cadbury Dairy Milk, Tang, Perk (chocolate-coated wafer), Cadbury Eclairs, Softmint (candy). The Appellant launched Trident Sugar Free Chewing Gum in Pakistan in August 2016. The product has two variations i.e. (i). Single Pieces - (Consumer price: PKR 5/piece) - being imported from Mondelez, Egypt (ii) 5 piece slabs (Consumer Price: PKR 25/piece) - being imported from Mondelez, Turkey.
4. In 2016, in the feasibility studies, the import value was set at the assessed value of US $5.25/kg was the transaction cost of the product (1st ruling of the cost in April 2016 was based on the assessed value of US $ 2.2/kg). It was on the basis of the aforementioned transaction cost of US $ 5.25/kg that the Appellant launched the Trident Sugar Free Chewing Gum in Pakistan. It is to be noted that an amendment was made to the ruling of the cost in July 2016, after which the duty increased from US $ 5.25/kg to US $ 7.12/kg. It is pertinent to note that a further amendment was made to the ruling of the cost on 22nd December 2016 as a result of which the duty further increased to US $ 11/kg. The appellant attached and marked as Annexure B is a copy of the Valuation Ruling No.1000/2016 dated 22.12.2016 wherein the Customs value is stated as US $ 11/kg for the Trident sugar fee chewing gum bearing PCT Code 1704.1000. It is to be mentioned that the valuation increased by more than double i.e. 120% posing a substantial and significant impact on the net profit margins of the Appellant's business in Pakistan, hence, making it absolutely non- viable for the Appellant to sustain its Trident sugar free gum business in Pakistan. The valuation with respect to sugar free chewing gum bearing PCT code 1704.1000 has undergone significant increase since the Appellant started its Trident sugar free chewing-gum business in Pakistan barely a year ago. The Appellant filed a Revision Petition under section 25D of the Customs Act, 1969 on 20 January 2017 against the Valuation Ruling No.1000/2016 dated 22.12.2016 wherein the Customs value is stated as US $ 11/kg for the Trident sugar fee chewing-gum. In the said Revision Petition, the Appellant informed the Respondent that the Appellant had not been given an opportunity of being heard and that the Appellant was not provided with the opportunity to participate in the discussions prior to the Valuation ruling dated 22.12.2016 and that the said ruling wrongly states that all stakeholders were present and were given an opportunity to present their point of view. In response to a letter dated 30.01.2017, the Appellant sent a letter dated 08.02.2017 to the Director General, Valuation Department, Customs House, Karachi a day prior to the hearing held on 09.02.2017 of the Revision Petition against Valuation Ruling No.1000/2016 dated 22.12.2016, attaching all the documents required as per said letter. Copy of the Authorization letter, copy of Invoices from Sourcing Plants, copy of the Launch Report, copies of Debit Advices TT Swift Messages and Import Goods Declaration, copies of the Sales Tax Invoices, copies of the Trident Product Labeling Reports were duly attached to the letter dated 8 February 2017 sent by the Appellant.
5. Hearing for the Revision Petition under section 25D of the Customs Act, 1969 against Valuation Ruling No.1000/2016 dated 22.12.2016 was held on 09.02.2017, The Appellant was asked to submit confirmation letters from the exporters of Trident sugar free chewing gum confirming the price of the said chewing gum sold to the Appellant and providing contact details of the exporters. The Appellant sent a letter dated 17.02.2017 to the Director General, Valuation Department, Customs, Karachi attaching two letters from the exporters, i.e. (i) letter dated 16.02.2017 from Mondelez Turkey with respect to cost of 5 piece slabs of Trident sugar free chewing gum imported from Turkey and
(ii) letter dated 16.02.2017 from Mondelez Egypt with respect to costs of single pieces of Trident sugar free chewing gum imported from Egypt from the Appellant to the Director General, Valuation Department, Custom House, Karachi prior to passing of the Order-in-Revision No.329/2017 dated 14.04,2017. The Appellant sent a letter dated 31.O3.2017 to the Respondent i.e. Director General, Valuation Department, Custom House, Karachi in order to provide the Respondent and the Custom Valuation Department with documentation supporting the Appellant's point of view such that why the assessm ent value should be in line with the actual invoice price and not in accordance with the Valuation ruling dated 22.12.2016. The respondent was informed that the cost of investment in the gum business is much higher as compared to the usual business products and in this regard the Appellant provided the Respondent with a Profit and Loss Statement of the chewing gum business evidencing the net loss to the Appellant due to higher duty. The Appellant also provided the Respondent with the Appellant's three year sales plan for the Trident sugar free chewing gum and the expected duty and tax payment schedule. The Respondent was informed that the Appellant wishes to play a significant role in the growth of the chewing gum market in Pakistan with affordable yet quality products and which will have a huge, positive impact on quantum of the duties and taxes paid to the government it will pay the revenue authorities in Pakistan. In the said letter dated 31.03.2017, the Appellant sought the Respondent's support in arriving at assessment value in line with the actual Invoice price which will greatly help the Appellant to continue selling quality products in Pakistan. A copy of Profit and Loss statement as prepared by the Appellant with respect to the Trident sugar free chewing gum business along with a copy of the Appellant's three year sales plan for the Trident sugar free chewing gum and the expected duty and tax payment schedule was also provided. Despite having provided all documentation as and when required by the Respondent and the Customs Valuation department and the documentary evidence provided to support the Appellant's claim that the assessment value should be in line with the actual Invoice price, the Respondent passed the impugned order completely ignoring the factual circumstances of the case. As assorted by the appellants the valuation increase by more than double i.e. 120% posed a significant impact on the net profit margins of the Appellant's business in Pakistan, hence, making it absolutely non-viable for the Appellant to sustain its Trident sugar free gum business in Pakistan.
6. Apparently, the impugned order is opposed to the facts of the case and devoid of reasoning and legal substance and is contrary to law. It ignores the relevant and material considerations and is based on arbitrary, irrelevant and immaterial considerations. The discretion given to the Director of Customs Valuation under section 25-A of the Customs Act, 1969 has to be exercised within limits based on reason, rational and fair play whereas the determination of Customs value is arbitrary and the result of whimsical authority which is alien to the judicial process. The impugned order provides a sequential narration of all the relevant subsections of section 25 of the Customs Act, 1969, however, it fails to provide specific factual, clear or logical reasons to show how the respondent determined the customs value and the reasons for determination set out in the impugned order are illogical and arbitrary. The respondent in the impugned order stated that the methods provided in subsections (1), (5), (6), (7) and (8) of section 25 of the Customs Act, 1969 could not be adopted owing to data which could not be relied upon, unavailability of data and/or the value could not be solely based on any one specific method provided. However, contrary to his own conclusion as aforementioned, the respondent determined the Customs Value using the fall back method under section 25(9) of the Customs Act, 1969, eventually relying on PRAL database, market information and international prices available on the intend without providing any details of what the information used revealed. The respondent failed to provide the stake holder i.e. the appellant with an opportunity to defend its case which is resulting in it being inflicted with colossal pecuniary burden and by doing so the respondent has violated the principles of natural justice.
7. Rival parities heard and case record perused along with relied upon citations. The case of the appellant revolves around the rejection of his petition under Section 25D of the Customs Act, 1969 through Order-in-Revision 329/2017 dated 14.04.2017 by the Respondent. The Appellant submitted relevant correspondence with exporter, bank statement indicating the payment of transaction amount to the exporter, sales register, sales tax invoices and other supportive documents to the Respondent. The Respondent did not bother to mention this fact in Order-in-Revision and rejected the petition under section 25D without considering the verified documents submitted by the appellant. The Representative of the Respondent failed to negate the arguments / documents of the Appellant consultant / advocate either through comments or during the course of hearing. It seems that the Director Customs Valuation issued the Valuation Ruling completely white ignoring the documents / record of imports and data maintained by the PRAL of the period as prescribed in Rule 107(a) of Chapter XI of Custom Rules, 2001. Keeping in view the documents submitted by the Appellant / advocate, it is our considered opinion that the Respondent has failed to issue a judicious Order-in-Revision. The Respondent has not addressed the grievances of the appellant which were quite genuine and just. On the contrary the Respondent gave the Appellant a very perfunctory treatment as is evident from the Order-in-Revision, which does not contain a. single ground of the appellants Revision Application. We are constrained to observe that this is not a good judicial approach. The order so passed by the respondent is not at all a speaking or judicious order and as such fail the test of judicial scrutiny.
8. Notwithstanding, the above, we are of the view that the provisions of Section 25 of the Act, are to be followed in sequential manner barring certain exceptional cases where massive group under invoicing is suspected which is not visible in this case. Resort to subsequent method is not permissible without any exception that is without exhausting the sequence indicated in section 25 as it would defeat the concept of the transaction value. The methods of custom valuation are normally required to be applied in a sequential order except reversal of the order of subsections (7) and (8) at the importer's, request, if so agreed by the Collector of Custom. This aspect has been examined countless times by the Superior Judicial Fora and held that the provisions of Section 25 of the Act, are to be followed in sequential manner without any exception, reference is placed to reported / unreported judgments listed below:-
(i) 2006 PTD 909 Rehan Omer v. Collector of Customs Karachi, ii) 2008 PTD 1494 Messrs Toyo International Motorcycle v. Federation of Pakistan and 3 others, iii) 2008 PTD 1250 Najam Impex Lhr v. Assistant Collector of Customs, Karachi and others, iv) 2018 PTD 1746 Sadia Jabbar v. FOP v) 2013 PTD 825 Faco Trading Company v. Members Custom, Federal Board of Revenue and others.
(vi) 2014 PTD 176 Goodwill Traders, Karachi v. FOP
9. We have observed that the DG Customs Valuation in the impugned Order-in-Revision upheld the Valuation Ruling 1000/2016 dated 22.12.2016 without application of prudent mind or any analysis of the applied provisions of law. The superior courts have time and again ruled that issuance of VR is a serious exercise involving the basic theme of Section 25 of the Customs Act, 1969 which is replica of Article VII of GATT (WTO Customs Valuation Agreement) coupled with interpretive Notes to Article VII (which has been transposed to Customs Valuation Rules). In the land mark judgment of Sadia Jabbar v. Federation of Pakistan [2018 P113 1746] it was held that the exercise of issuance of any VR shall be based on the basic scheme of section 25 of the Customs Act, 1969 and the methods of Customs Valuation shall be applied in the sequence depicting the reason while skipping of any method. The Honorable Sindh High Court in the above cited case law cited various VRs which were declared ultra wires because of non-compliance to applicable sequence of customs valuation methods. The learned Director Customs Valuation applied the Section 25(9) of the Customs Act, 1969 skipping Sections 25(1), 25(5)(6)(7) and Section 25(8). The learned Director applied the method under Section 25(9) without going into text of Section and Customs Valuation Rules, 2001.
In fact Customs Valuation under section 25(9) of Customs Act, 1969 involves no new method but allows Customs Valuation under the methods described under preceding Sub-sections of Customs Act, 1969 in a "flexible manner" the term "flexible manner" has been elaborated in the Customs Valuation Rule 121 reproduced as below:
121. Fall back method.- (1) Value of imported goods determined under subsection (9) of section 25 of the Act, shall, to the greatest extent possible be based on previously determined customs values of identical goods assessed within ninety days.
2) The methods of valuation, to be employed under subsection (9) of section 25 of the Act may be inclusive of those laid down in subsections (1), (5), (6), (7) and (8) of the sold section, but a reasonable flexibility in the application of such methods would be in conformity with the aims and provisions of subsection (9) of that section.
Explanation.- Some examples of reasonable flexibility are as follows, namely:- i) Identical goods - a) the requirement that the identical goods shall be imported at or about the some time as the goods being valued, could be flexibly interpreted; b) identical imported goods produced in a country other than the country of exportation of the goods being valued could be the basis for customs valuation; and c) customs-values of identical imported goods already determined under subsections (7) and (8) of section 25 could be used. ii) Similar goods -- a) the requirement that the similar goods shall be imported at or about the same time as the goods being valued could be flexibly interpreted; b) similar imported goods produced in a country other than the country of exportation of the goods being valued could be the basis for customs valuation; and c) customs-values of similar imported goods already determined under subsections (7) and (8) of section 25 of the Act could be used. iii) Deductive method-- The requirement that the goods shall have been sold in the "condition as imported" as provided in clause (a) of subsection (7) of section 25 of the Act could be flexibly interpreted, and the ninety days requirement could be administered flexibly"
10. The impugned VR does not give any cogent reason as why the primary or secondary methods of Customs Valuation were not followed for issuance of the impugned VR. Moreover the learned Director also failed to reflect which customs method as described under Section 25(5), 25(6), 25(7) or 25(8) while issuing impugned VR and with what "flexible manner". It is very disturbing to note that learned Director General did not take cognizance of any of the above aspect while dismissing the revision application. We hold that impugned VR suffers from above legal defects that render it legally unsustainable and is therefore declared illegal and void ab intio. It is well established legal principle that if the initial order on which the superstructure is built, suffer from legal infirmities then resulting structure will also suffer from the same infirmities. The impugned Order-in-Revision does not reflect the facts on ground. The Director is ordered to issue new VR on basis of facts, values pertaining to relevant period and in light of relevant provisions of law.
11. On the basis of above facts, we set aside the Order-in-Revision No. 329/2017 dated 14.04.2017 to the extent of "Trident" brand chewing gum mentioned at S.Nos.12 and 13 of Valuation Ruling No.1000/2016 dated 22.12.2016 and direct the relevant field formation to re-assess the goods of Appellant under subsection (1) of the Section 25 of the Customs Act, 1969.
12. Judgment passed and announced accordingly.
13. This order consists of eight (08) pages and each page bears my initials and office seal.