MAZHAR ALI GHALLU, MEMBER JUDICIAL-II. By this judgment, we intend to dispose Custom Appeal No. K-96/2022 filed by the appellant against Order-in-Original No.849/2021-2022 dated 30.11.2021 passed by the Collector of Customs (Adjudication-II), Karachi.
2. Brief facts of the case as per contravention report, in pursuance of the above information, the documents relating to the consignments of steel sheet coils imported by M/s. Essa Steel (NTN # 3791808), Karachi under SRO 655(I)/2006 dated 22-06-2006 were retrieved from WeBOC system scrutiny of which transpired that M/s. Essa Steel (NTN 3791808), Office No. 104, 1st Floor, Business and Finance Centre, I.I. Chundrigar Road, Karachi are involved in the evasion of Customs Duty and Taxes by mis-using SRO 655(I)/2006, dated 22.06.2006 by way of clearing steel sheets in coils on concessionary rate of Customs Duty i.e. @ 1% instead of Customs Duty @ 20%. It was observed that the description in in-bond GDs differs with the description as per invoice, packing list and bill of lading. Moreover, size of the steel sheet coils mentioned in invoice, packing list and bill of lading does not match with the size allowed by the Engineering Development Board (EDB). Whereas, grade / specification has not been mentioned in the GDs and packing list shows Goods Declarations-wise discrepancies which is the integral part of the show-cause notice/contravention report. The modus operandi adopted by M/s. Essa Steel (NTN # 3791808), Karachi was such that the imported goods were misdeclared to illegally avail the benefit of SRO 655(I)/2006 dated 22.06.2006, to get said goods cleared on reduced rate of duty and taxes thus causing loss to the national exchequer.
3. In view of above facts, it is established beyond, any shadow of doubt that Essa Farooq of M/s. Essa Steel in connivance with other associates-in-crime have evaded customs duty and taxes amounting to Rs.23,847,607/- by mis-using and illegally claiming SRO 655(I)/2006 dated 22-06- 2006 and have violated the provisions of violation of Sections 19, 32(1), 32(2) and 32(A) of the Customs Act, 1969, read with SRO 655(I)/2006 dated 22.06.2006, read with Sections 3, 6 and 7A of the Sales Tax Act, 1990, further read with Section 148 of the Income Tax Ordinance, 2001, punishable under clauses (10A), (14) and (14A) of Section 156(1) of the Customs Act, 1969, Sections 33 and 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001.
4. As per contravention report, the role of all associates in the crime, including Muhammad Siddiq (CNIC No. 42201-5940954-9) and Abdul Ghaffar (CNIC No. 42301-0752147-7) Partner of M/s. G.S.S. Traders, 18A, 19, 1st Floor, Pak Chamber, West Wharf Road, Karachi clearing agents (CHAL No. 1043).
Customs and Engineering Development Board (EDB) is being ascertained. FIRs. C.No. Appg- 118A/DCl/R&A/Essa Steel/FIR/2019/, C. No. Appg-118-B/DCl/R&A Essa Steel/FIR/2019/, C.No. Appg- 118C/DCI/R&A/Essa Steel/FIR 2019/, C.No. Appg-118-A/DCl/R&A Essa Steel/FIR /2019/, all dated 06.12.2019 were lodged accordingly against Essa Farooq and other associates in crime to be ascertained during investigation.
5. As per contravention report, subsequent to the lodging of the FIRs, efforts were underway to arrest the nominated accused person. The accused Essa Farooq filed Constitutional Petitions Nos.
D-8053 of 2019 and D-9094 of 2019, wherein, the Honorable High Court of Sindh at Karachi, in its order dated 11-12-2019 in Constitution Petition No. D-8053 of 2019 and order dated 18-12-2019 in Constitution Petition No. D-8094 of 2019 restrained the Directorate General, Intelligence and Investigation (Customs) from arresting and taking any adverse action against the petitioner (Accused) and directed the petitioner to cooperate with the prosecution. In this regard the accused Essa Farooq was summoned and he appeared on 07-01-2020. He was asked series of questions related to the case, however, he could not give any documentary evidence of the existence of industrial unit of M/s Essa Steel in Hyderabad. However, he stated that he was unable to provide the evidence due to unavailability of data / documents at the time. Therefore, he was provided a list of documents that may prove existence of industrial unit at Hyderabad and prove production and sales of the finished products made out of concessionary imported steel, to submit on 09-01-2020, but he did not appear on the date. The accused was again reminded to appear and produce the required documents but he did not turn-up.
6. As per contravention report, since the accused was not cooperating in the investigation, therefore, to verify the existence of the industrial unit of M/s Essa Steel, the official of the Directorate General of Intelligence and Investigation-Customs, Regional Office, Karachi visited the provided address i.e. Plot # 13, Tando Yousuf road, Zam Zam Industries, Cottage Area, Hyderabad, and found that the unit of M/s Essa Steel did not exist at the given address. However, a small industrial' unit namely AR-Industries employing 810 workers was found. Upon enquiry from the worker namely Naveed son of Mohammad Hanif it was revealed that he did not know about M/s Essa Steel and the unit at the address is named as AR Industries that is owned by one Asif son of Qamar Uddin. The worker also provided copies of Sales Tax Invoices issued by M/s AR Industries NTN # 2662346-3. To verify the NTN, online enquiry with Federal of Board of Revenue (FBR) was conducted which revealed that, indeed, a unit named as M/s. A.R Industries was registered to Asif CNIC 41303- 7016202-1 on the given access. To proceed further into the matter, Mr. Asif was issued notice to appear on 09-03-2020 but he did not appear. However, based on the available evidence, it is proved that the industrial unit of M/s AR Industries exists on the address and unit of M/s Essa Steel does not exist. Mr. Asif his industrial unit's address use to illegally register the industrial unit of M/s Essa Steel that actually does not exist.
7. As per contravention report, that scrutiny of the sales record of M/s Essa Steel as provided by Engineering Development Board, revealed that M/s Essa Steel, in the month of Jun, 2019, filed / declared 'sales to M/s Zoya Steel Corporation NTN # 2225018-2 owned by Saleem Malik CNIC 37405-5051490-3, M/s Smart Steel NTN 7222207-4 owned by Muhammad Nasir CNIC 36302- 4802618-5, M/s Jafir Trade NTN # 4117724-0 owned by Ghulam Jafir CNIC 36302-2042265-3, M/s Fine Steel NTN # 7222194-0 owned by Muhammad Yousaf CNIC 36102-6371408-1 and M/s. Modern Steel NTN # 5193707-5 owned by Abid Khan CNIC 21202-7517706-3 and to various unregistered buyers. To verify such sales, the registered buyers were issued notices on their registered addresses but the notices returned back due to incomplete, fake addresses. To verify the physical existence of the buyers, the official of the Directorate General of Intelligence and Investigation- Customs, Regional Office, Karachi visited the registered addresses of M/s Jafir Traders, M/s Fine Steel and M/s Smart Steel, but none existed on the given addresses. Moreover, Mr. Saleem Malik of M/s Zoya Steel Corporation, vide complaint dated nil received on 13.07.2020, received through the Directorate General, Intelligence and Investigation (Customs), Islamabad, stated categorically on oath that he has no business relations with M/s Essa Steel and he has not conducted any business with M/s Essa Steel. He further stated that his Sales Tax ID was handed-over to an advocate namely Shahid Shah son of Syed Noor Ahmed CNIC 42301-8357836-3, who has mis-used his ID and claimed fake sales invoices of M/s Essa Steel. Hence, based on the available evidence, the sales of M/s Essa Steel are fake / fabricated.
8. As per contravention report, to ascertain role of clearing agents, the agents Muhammad Siddiq and Abdul Ghafffar of M/s G.S.S Traders were asked to join investigation. On 06-01-2020, Muhammad Siddiq joined investigation and stated that his partner Abdul Ghaffar has passed away and 'submitted his death certificate dated 26-05-2016 issued by Secretary Union Administration-II, Garden East Jamshed Town, Karachi. To confirm the authencity of the death certificate a letter to the Union Administration-II, Garden East Jamshed Town, Karachi has been sent. Moreover, during interrogation, the clearing agent, Muhammad Siddiq admitted that he filed Into-Bond GDs and also claimed benefit under SRO 655(I)/2006 dated 22-06-2006 at the time of submitting of Ex-bond GDs. When asked for not claiming of SRO benefit at the time of filing of Into Bond GDs and then claiming of the same on Ex-bond GDs, he could not put forth any plausible justification. When he was asked why there is difference between thickness of coils as mentioned in Packing Lists of consignments and the thickness claimed against allowed quota, he replied that the SRO 655(I)/2006 dated 22-06-2006 is silent on the thickness and grade specification of the goods which are secondary in nature and the benefit provided by EDB to M/s. Essa Steel, is granted with respect to the quantity of the raw material which is not in dispute. However, perusal of SRO 655(I)/2006 dated 22-06-2006 revealed that as per condition II of the SRO, the manufacturer- cum-importer, at the time of import of approved items, shall make a declaration on the bill of entry or Goods Declaration (GD) to the effect that the items have been imported in accordance with his entitlement for the manufacture of specified items. Moreover, perusal of the Input Output Ratios and Capacity Utilization Certificate (Form-A), issued by Engineering Development Board (EDB), revealed that the benefit provided by Engineering Development Board (EDB) to M/s Essa Steel, is granted with respect to the quantity of specific thickness and grade specification of steel sheets and not only the quantity, thus the clearing agent to hoodwink the customs staff knowingly did not declare the thickness and the grade specification of the steel coils at the time of filing in-bond and Ex-bond GDs.
9. As per contravention report to ascertain the role of Engineering Development Board (EDB) a notice was sent to Chief Executive Officer of Engineering Development Board (EDB) to nominate officer who can provide information and relevant documents. In response Engineering Development Board (EDB) nominated Engr. Roshan Lal Manager (South) who submitted documents i.e. (a) Input Output Ratio and Capacity Utilization Certificate for the year 2018-19, (b)
Input Material Consumption (Appendix-1) for the year 2018-19 (c) revalidation of Input Output Ratio and Capacity Utilization Certificate for the year 2019-20 issued by Yasir Qurban Deputy Manger, Engineering Development Board (EDB) (Tariff) and Asim Ayaz DGMEDB (Coord) and Verification of Input Output Ratios/Wastages and Manufacturing Facility issued/certified by EDBs Technical team comprises of Engr Roshan Lal Haseji Manager -- EDB (South), Sadaruddin Memon, Assistant Manager Engineering Development Board (EDB) and Mr. Muhammad Tariq of Motor Vehicle Research, Dev. and Establishment, (MODP), and Consumption Report, Statement of Purchase Orders and Delivery Challans issued by M/s Essa Steel. Notices to join investigation were sent to the aforementioned EDB officials; however, due to budget exercise 2020-21 and the Covid-19 pandemic they could not join investigation. Role of Shahid Shah son of Syed Noor Ahmed (CNIC 42301- 8357836-3), Engineering Development Board (EDB) officials and Customs Staff is being ascertained in further investigation.
10. As per contravention report, in view of the above, it is established beyond any shadow of doubt that Essa Farooq of the M/s Essa Steel with connivance of other associates in crime have evaded customs duty and taxes amounting to Rs. 23,847,607/-, on 04 consignments/In-bond Goods Decelerations, cleared/filed at MCC Appraisement (East), Karachi by misusing and illegally claiming SRO 655(I)/2006 dated 22-06-2006 tacting violation of Sections 19, 32(1), 32 (2) and 32 (A) of the Customs Act, 1969, read with SRO 655(I) 2006, dated 22.06.2006 and, punishable under clauses (10A), (14) and (14A) of Section 156 (1) of de Customs Act, 1969 read with Sections 3, 6, 7A, 33 and 34 of Sales Tax Act, 1990, further read with Section 148 of the Income Tax Ordinance, 2001. The Directorate has informed that similarly. 07 consignments In-bond Goods Decelerations of steel sheet coils were cleared/filed at MCC Port Muhammad Bin Qasim, Karachi with same modus operandi, evading duty taxes to the tune of Rs 91,191,341/-. Contravention Reports in respect of goods cleared from MCC Port Muhammad Bin Qasim, Karachi will be forwarded separately to the concerned Adjudication Collectorate.
11. Accordingly, Mr. Essa Farooq (CNIC No. 42301-6411249-3) of M/s. Essa steel (NTN-3791808).
Address:- (a).Office No. 104. 1 Floor. Business and Finance Centre, I.I. Chundrigar Road. Karachi & (b)
Residence: 46/ A. Street No. 28, Khayaban-e-Mujahid. DHA, Karachi with their clearing agent and others associated persons (i) Mr. Muhammad Siddiq (CNIC No. 42201-5940954-9), Mr. Abdul Ghaffar (CNIC No. 42301-0752147-7) Partner Clearing Agent M/s. Q.S.S. Traders (CHAL No. 1043), 18A, 19A, 1st Floor, Pak Chamber. West Wharf Road. Karachi, (ii) Mr. Saleem Malik (CNIC 37405-5051490- 3), son of Allah Rakha. Proprietor of M/s Zoya Steel Corporation (NTN # 2225018-2). Plot No.2-I. Base No.1, Bazar No.4, Abu Hurara Market, 1-8/2, Islamabad. (Buyer). (iii) Mr. Muhammad Nasir (CNIC 36302-4802618-5), son of Ghulam Jafar. Proprietor of M/s Smart Steel (NTN # 7222207-4), Office No. 36, Trust Plaza; Near Dera Adda. Mumtazabad Town, Multan Buyer), (iv) Mr. Ghulam Jafir (CNIC 36302-2042265-3) son of Falak Sher, Proprietor of M/s Jafir Trader (NTN # 4117724-0), 5- Samajabad, Shah Rukn-e-Alam Town, Multan Cantt. Multan. (Buyer). (v) Mr. Muhammad Yousaf (CNIC 36102-6371408-1) son of Malak Raja. Proprietor of M/s Fine Steel (NTN 7222194-0), Address: Office No. 30, Lohari Gate, Mention Plaza, Mumtazabad Town: Multan (Buyer). (vi) Mr. Abid Khan (CNIC 21202-7517706-3) son of Mohammad Ashraf Afridi, Proprietor of M/s Modern Steel (NTN # 5193707-5), Koki Khel, Katia Khel, Shah Kas, Jamrud, Khyber Jamrud, Peshawar. (Buyer). (vii) Mr. Asif (CNIC No. 41303-7016202-3) son of Qamaruddin of M/s AR Industries, address:- (a) Residence D/24, Cantt Housing Scheme, Gulistan-e-Johar, Karachi & (b). Office Address: M/s AR Industries, Zam Zam Industrial Cottages, Plot No. 13, Tando Yousif Road, Hyderabad, (viii) Mr. Yasir Qurban, Dy.
Manger (Tariff), Engineering Development Board. 1st Floor, SEDC, Building (STP). Constitution Avenue, F-5/1, Islamabad, (ix) Mr. Asim Ayaz DGM (Coord), Engineering Development Board, 1st Floor. SEDC, Building (STP), Constitution Avenue, F-5/1, Islamabad and (x) Mr. Roshan Lal, Manger (South), Engineering Development Board, (Regional Office), PIDC House, 2nd Floor, Dr. Ziauddin Ahmed Road, Karachi were called upon to show-cause under the provisions of Sections 19, 32(1), 32(2) and 32(A) of the Customs Act, 1969, read with SRO 655(I)/2006 dated 22.06.2006, read with Sections 3, 6 and 7A of the Sales Tax Act, 1990, further read with Section 148 of the Income Tax Ordinance, 2001 as to why the evaded amount of duty and taxes to the tune of Rs. 23,847,607/- (Customs Duty amounting to Rs. 11,042,174/-, Additional Customs Duty amounting to Rs. NIL/-, Regulatory Duty amounting to Rs.2,905,836/-, Sales Tax amounting to Rs. 2,371,161/ Additional Sales Tax amounting to Rs.2,214,246/- and Income Tax amounting to Rs. 5,314p191/-) along with default surcharge (to be calculated at the time of payment under Section 34 of the Sales Tax Act, 1990 may not be recovered from them and why penal action under clauses (10-A), (14) and (14A) of Section 156(1) of the Custom Act, 1969, Section 33 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001 should not be taken against them.
12. A show-cause notice issued and matter was adjudicated. The learned Collector of Customs (Adjudication-II), Custom House, Karachi passed an Order-in-Original No. 849/2021-2022 dated 30.11.2021 as under:- "22. In view of the foregoing facts proved that the charges of mis-declaration the instant consignments levelled in the show cause notice stood established. I, therefore, order the respondent Mr. Essa Farooq (CNIC No. 42301-6411249-3) of MIs. Essa Steel (NTN-3791808), Address:- (a).office No. 104, 1st Floor, Business and Finance Centre, I.I. Chundrigar Road, Karachi and (b)
Residence: 46 A, Street No. 28, Khayaban-e-Mujahid, DHA, Karachi to immediately pay the evaded amount of duties and taxes of Rs. 23,847,607/(Customs Duty amounting to Rs.11,042,174/-, Additional Customs Duty amounting to Rs.NIL/-, Regulatory puty amounting to Rs. 2,905,8364'
Sales Tax amounting to Rs.2,371,161/-, Additional Sales Tax amounting to Rs.2,214,246/- and Incpme Tax amounting to Rs.5,314,191/-). A personal penalty of Rs. 58,116,702/- equal to the offending value is also imposed to Mr. Essa Farooq (CNIC No. 42301-6411249-3) of M/s. Essa Steel (NTN-3791808), Address:- (a) office No. 104, 1st Floor, Business and Finance Centre, I.I. Chundrigar Road, Karachi and (b) Residence: 46/A, Street No. 28, Khayaban-e-Mujahid, DHA, Karachi. A personal penalty of Rs. 1,000,000/- (Rupee One Million Only) each also imposed to (1) Mr. Mohammad Nasir (CNIC 36302-4802618-5) son of Ghulam Jafar, Proprietor of M/s Smart Steel (NTN # 7222207-4). Address: Office No. 36, Trust Plaza, Near Dera Adda, Mumtazabad Town, Multan, (Buyer), (II) Mr. Ghulam Jafir (CNIC 36302-2042265-3), son of Falak Sher, Proprietor of M/s Jafir Trader (NTN It 4117724-0), 5Samajabad, Shah Rukn-e-Alam Town, Multan Cantt, Multan (Buyer), (III) Mr. Muhammad Yousaf (CNIC 36102-6371408-1) son of Malak Raja, Proprietor of M/s Fine Steel (NTN # 72221940), Office No. 30, Lohari Gate, Mention Plaza, Mumtazabad Town, Multan. (Buyer). (IV) Mr. Abid Khan (CNIC 21202.7517706-3) son of Mohammad Ashraf Afridi, Proprietor of M/s Modern Steel (NTN # 5193707- 5), Koki Khel, Katia Khel, Shah Kas, Jamrud, Khyber Jamrud, Peshawar. (Buyer) in terms of clauses (10A), (14), (14A) and (89) of Section 156(1) of the Customs Act, 1969, who facilitated this fraud by issuing purchase invoices. A personal penalty of Rs. 1,000,000/-(Rupee One Million Only) is also imposed to Mr. Asif (CNIC No. 413037016202-3) son of Qamaruddin of MIs AR Industries, address:-
(a) Residence H# D/24, Cant' Housing Scheme, Gulistan-e-Johgr, Karachi and (b) Office Address: M/s AR Industries. Zam Zam Industrial Cottages. Plot No. 13, Tando Yousif Road, Hyderabad in terms of clauses (10A), (14), (14A) and (89) of Section 156(1) of the Customs Act, 1969 as he played a major role in this tax fraud by letting the respondent importer to use his address / premises just to falsely show the Engineering Development Board (EDB), that respondent importer is indulging in manufacturing the auto parts and thus facilitated in this conspiracy in a major way and facilitated in hoodwinking the Engineering Development Board (EDB). However, taking a lenient view a personal penalty of Rs. 100,000/- (Rupee One Hundred Thousands Only) is imposed on Mr. Saleem Malik (CNIC 37405-5051490-3) son of Allah Rakha, Proprietor of MIs Zoya Steel Corporation (NTN W. 2225018-2) Plot No.2-1, Base No.1, Bazar No. 4, Abu Hurara Market, I-8/2, Islamabad. (Buyer) clauses (10A), (14), (14A) and (89) of Section 156(1) of the Customs Act, 1969 as he divulged truth to department regarding misuse of his ID.
23. As far as the role of the clearing agent in the subject case is concerned, it is observed that under the Customs Act, 1969 he acts on behalf of the principal for all the purposes of the Act and cannot be absolved of all responsibility other than merely scanning the documents delivered by the principal importer. The Clearing Agent contended that mis-matched specifications of secondary quality goods is not barred/hindered in clearance of raw material quota for manufacturing of vehicles under SRO 655(I)/2006. However, clearing agent did not bring the deviation between the specifications of imported items approved by Engineering Development Board (EDB) and those actually imported by importer before Customs and hence failed in discharging his responsibilities. A penalty of Rs. 200,000/-(Rupee Two Hundred Thousands Only) is, therefore, imposed on M/s. G.S.S. Traders (CHAL No. 1043), 18A, 19A, 1st Floor, Pak Chamber, West Wharf Road, Karachi in terms of 14 of Section 156(1) of the Customs Act, 1969, who facilitated this clearance.
24. Though the Engineering Development Board (EDB) has not submitted any reply of the show- cause notice before this forum. However, as per record following officers are implicated in this case due to their negligent and indifferent attitude towards interest of national exchequer. It would be therefore a travesty of justice, if they go scot free. Hence, a personal penalty in terms of clause 1(i) of Section 156(1) are also imposed on them as per follows: S.NO.Name of the Respondent with their address as per Contravention Report Penalty is imposed in Pak Rupees
(I) Mr. Yasir qurban, Dy.Manager (Tariff), Engineering Development 1st Floor, SEDC, Building (STP), Constitution Avenue, F-5/I, Islamabad.Rs.50000/-
(ii) Mr. Asim Ayaz DGM (Coord), Engineering Development Board, 1st Floor, SEDC, Building (STP), Constitution Avenue, F-5/I, Islamabad.Rs.50000/-
(iii) Mr. Roshan Lal, Manager (South), Engineering Development Board, (Regional Office), BIDC House 2nd Floor, Dr. Ziauddin Ahmad Road, KarachiRs.50000/-
13. Being aggrieved with the verdict of Adjudicating Officer the instant appeal was filed by the appellant against the Order-in-Original No. 849/2021-22 dated 30.11.2021, before this tribunal grounds are as under:- a. That the right to life, liberty, Business, property and honor is fundamental right of die appellant as per Article 25-A of the Constitution 1973 of Pakistan and the appellant cannot be deprived of the same except in accordance with law in the light of Article 12 of the Constitution of Pakistan, 1973. b. That at the very outset, it is pointed out that the contravention report/show-cause framed by the reporting Directorate is ab initio without jurisdiction. The reporting Directorate is not invested with the powers to carry out post clearance verification/audit of past and closed transaction, which powers solely vest with Directorate General of Post clearance 'Audit constituted by virtue of section 3DD of the Customs Act, 1969. Hence, any proceedings emanating from such without jurisdiction contravention report including the issuance of show-cause notice is unlawful, void and of no legal effect. c. That the instant alleged contravention/show-cause framed by reporting Directorate on the basis of mis-using and illegally claimed SRO 655(I)12006 dated 22-06-2006, is without any lawful authority in terms of the decision of the Honorable High Court in the case of Saadat Khan v.
Federation of Pakistan and others reported in PTCL 2015 CL 83 whereby the Honorable Court has held that interpretation of an exemption notification is not within the mandate or jurisdiction of the reporting Directorate. d. That the reporting Directorate is not empowered to initiate proceedings or for that matter, issue contravention report for recovery of leviable customs duty and others taxes on account of misuse or illegally claiming SRO 655(I)/2006 dated 22-06-2006 for the very reason that under clause (x) of SRO 655(I)/2006 dated 22-06-2006 only Collector of Customs shall initiate proceedings for the recovery of leviable customs duty and others taxes but that too on the basis of findings of audit conducted by Engineering Development Board or any person/agency duly designated by Engineering Development Board. Therefore, the subject show-cause notice is liable to be vacated on this ground alone. e. That all the charges levelled in the Show-Cause Notice are without any tenable corroborative piece of evidence. It is pertinent to mention that manufacturer-cum importer is liable to provide information to Engineering Development Board envisaged under clause (Ixa) of SRO 655(I)/2006 dated 22-2-2006 where after input output ratio and Capacity Utilization Certificate is revalidated by Engineering Development Board is obliged to conduct audit of the records of such manufacture-cum-importer under clause (x) and if the consumption of goods is not found satisfactory, the collector of Customs shall initiate proceedings for recovery of leviable customs duty and other taxes besides penal action warranted under the law. Neither the requisite information furnished to the Engineering Development Board has ever been found to be unsatisfactory nor any such audit conducted by the Engineering Development Board or any person/ agency duly designated by the Engineering Development Board has been resulted into unsatisfactory findings. All the subject goods Declaration were accordingly processed and cleared by the respective clearance Collect orates after necessary quota debiting and no discrepancy was even reported. Therefore, the instant show-cause notice on the alleged charges of evasion of duty / taxes by mis-using and illegally claiming SRO 655(I)/2006 dated 22-06-2006 is liable to be vacated in limine. f. That it is cardinal principle of law that if the law has prescribed method for doing a thing in particular manner such provision of law is to be followed in letter and sprit and achieving or retaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted.
Likewise, any action for initiating proceedings for recovery of customs duty and other taxes on account of misuse of the SRO 655(I)/2006 dated 22-06-2006 could only be undertaken as is provided under clause (x) of the above SRO i.e. after conducting audit and on the basis of findings thereof to the effect that consumption of goods is not found satisfactory. Therefore, the charges of evasion of duty/taxes are premature and liable be vacated. g. That as far as role of appellant No. 2 is concern, there is nothing on record which could be implicated in any crime or whatsoever because all declaration under section 79 of Customs Act, 1969 have been verified by customs staff and found as declared in good declaration so there are all allegation in show-cause notice are fabricated and libel to set a side. h. That the Trade is already in a very depressing situation coupled with numerous other discouraging factors and cannot bear any other cost or increasing element in it under the garb of malicious acts of the customs authorities. i. That due process is fundamental right of the appellant and they cannot be subjected to any coercive measures without due process of law and on whims and wishes of the respondents. The Respondents are acting in the manners denying due process of law to the appellant, which is unconstitutional. j. That the respondents have no lawful authority to cause any loss and humiliation to any respectable and law abiding citizen. It is fundamental right of the appellant to be treated in accordance with law. Respondents are bent upon to infringe upon the fundamental right of the appellant without due process of law. k. That under the constitutional jurisdiction this Honorable Court has vast powers for the protection of the business of citizens of this country as well as for the protection of the Constitution. The acts of Respondents are in violation of the constitution and they are liable to be unappreciated and cured. l. That the Appellant humbly craves leave to urge additional grounds(s) at the time of hearing of this appeal.
14. On the final date of hearing the learned counsel for the appellant reiterated the arguments put- forth in the memo of appeal and simply prayed that the to declare act of the Respondent is illegal, unlawful, unconstitutional, mala fide, arbitrary, capricious, and in violation of principles of natural justice, equity and fair play and to declare that the Show-Cause Notice F. No. Coll. SCN/802 Cont- Appg 118/DIT-KHI/ESSA Steel/2021 and ONO No.849/2021 dated 30.11.2021 are illegal, misconceived, fabricated and same liable to be set-aside and Show-Cause Notice be vacated forthwith.
15. The Respondent Department has submitted memorandum of cross objections/para-wise comments in reply to the memo of appeal, which are taken on record and reproduced as under:- a. That contents of para A need no comments. b. In view of submission made above, the contents of para B are misleading and misinterpretation of the facts and law. Hence, denied. c. The contents of para C of are misleading. The learned counsel of the appellants referred the para 16 of the reported case of Saadat Khan v. Federation, which was challenged by the Respondent No.2 in the Supreme Court of Pakistan, leave was granted in the favour of the Respondent No.2 vide Order No. 20/2015. d. In continuation of submission made above, the contents of para are misleading and misinterpretation of the facts and law. The Contravention was processed in accordance with law for mis-declaration of description, size and grades of said coil and to illegally avail concessionary rate of duty vide SRO-655(I)/2006, dated 22.06.2006, and then selling the said coils in same state without any manufacturing. Besides, as per condition II of the SRO 655(I)/2006, the manufacturer- cum-importer, at the time of import of approved items, shall make a declaration on the bill of entry or Goods Declaration (GD) to the effect that the items have been imported in accordance with his entitlement for the manufacture of specified items. In the instant case, as evident from IORC, Invoice and Packing List, the importer was allowed to import Electro galvanized Coils Sheets of 1mm, 2mm and 3mm specifically. However, steel coils of irrelevant thickness ranging from 0.33 to 2.25 mm were imported and grossly mis-declared as steel coils of 2 mm. e. The contents of para E are misleading and contrary to the facts. As far as consumption of input material is concerned, it is submitted that the IORC issued by EDB mentions the in-put material for manufacturing of 70CC, 100CC and 125CC silencers as 4.14 kg/unit, 3.99 kg/unit and 3.90 kg/unit respectively. However, the consumption report submitted by Essa Steel mentions total input of material as 1,511,871 kg against manufacturing of 188,984 units of 70CC, 100CC and 125CC of silencers. The average per unit consumption of material is calculated as 7.99 kg/unit which is much higher than the average of the three types of the silencers which is 4.01 kg/unit. Hence denied. f. The contents of para F are contrary to the facts. The staff of the Respondent No.02 has processed the case in the manner as provided in law within their lawful jurisdiction. g. The contents of para G of the Appeal are misleading, contrary to the facts. The clearing agent was required to file correct description/detail at the time of filing of the GD. But, in the instant case, as evident from IORC, Invoice and Packing List, the importer was allowed to import Electro galvanized Coils Sheets of 1mm, 2mm and 3mm specifically. However, steel coils of irrelevant thickness ranging from 0.33 to 2.25 mm were imported and grossly mis-declared as steel coils of 2 mm. Besides, in terms of condition II of the SRO 655(I)/2006 state that the manufacturer cum- importer, at the time of import of approved items, shall make a declaration on the bill of entry or Goods Declaration (GD) to the effect that the items have been imported in accordance with his entitlement for the manufacture of specified items. Being a clearing agent, it was a responsibility of the respondent, to declare / mention on behalf of the importer that whether the goods being imported are entitlement to the manufacture of specific items. h. That the contents of para H need no comments. However, is the submitted that the depressing situation of the trade does not dissolve the role played by the Appellants in evasion of duty taxes.
That the contents are malicious and twisting of the facts. The Respondents has completed due process of law and the Appellants were given full opportunity of defense. Besides, the Appellant No.01 also approached the Honorable High Court of Sindh at Karachi, with unclean hands, even, did not respond to any of the notices issued to the importer by the Investigation Officer in relation to the FIR C. No. 118-A/DC1/R&A/Essa Steel/FIR/2019, C. No. 118-B/DCl/R&A/Essa Steel/FIR/2019, C. No. 118-C/DCl/R&A/Essa Stee/FIR/2019 and C. No. 118-D/DCl/R&A/Essa Steel/FIR/2019, of the Directorate of Intelligence and Investigation-Customs, Regional Office, Karachi. Beside, the Honourable High Court of Sindh at Karachi in orders dated 13.12.2019 in C.P. No. 8093 directed the petitioner. M/s Essa Steel to cooperate with the prosecution, however, the petitioner has not cooperated yet. j. That The contents of para J are misleading and twisting of the facts. The Appellants are caught red-handed as there is strong evidence available with Respondent No. 02. which is as under: i. That the sales record of M/s Essa Steel was scrutinized which transpired that M/s Essa Steel declared its sale out of manufacturing from goods cleared under EDB quota claiming exemptions of SRO 655(I)/2006 to five buyers namely to M/s Zoya Steel Corporation NTN # 2225018-2, M/s Smart Steel NTN # 7222207-4, M/s Jafir Trader NTN #4117724-0, M/s Fine Steel NTN # 7222194-0 and M/s Modern Steel NTN # 5193707-5. The physically verification of buyers transpired that none of the buyer existed at their addresses. ii. That, one purported buyer namely Saleem Malik of M/s Zoya Steel Corporation categorically denied such buying from M/s Essa Steel and submitted such statement vide complaint dated nil received on 13.07.2020 received through the Directorate General, Intelligence and Investigation (Customs), Islamabad. It proves that M/s Essa Steel issued flying / fake invoices to the non-existing buyers to declare its fake sales. iii. That, the purported Hyderabad manufacturing unit of M/s Essa Steel does not exist at the provided address i.e. Plot # 13, Tando Yousuf Road, Zam Zam Industries, Cottage Area, Hyderabad.
Instead, a small industrial unit namely AR-Industries NTN# 2662346-3 exists at the given address.
To hoodwink the authorities, M/s Essa Steel used the address of M/s AR-Industries. iv. That. M/s Essa Steel fraudulently got registered the Hyderabad address as their office with primary activity as Importer, Exporter/ Exporter/ Distribute but not the manufacturer which is one of the conditions of SRO 655(I)/2006 dated 22.06.2906. v. That, as per IORC issued by EDB mentions the in-put material for manufacturing of 70CC, 100CC and 125CC silencers as 4.14 kg/unit, 3.99 kg/unit and 3.90 kg/unit respectively. However, the consumption report submitted by A-One Steel mentions total input of material as 1,511,871 kg against manufacturing of 188,984 units of 70CC, 100CC and 125CC of silencers. The average per unit consumption of material is mentioned as 7.99 kg/unit which are much higher than the average of the three types of the silencer i.e. 4.01 kg/unit. Moreover, the official of EDB Mr. Qamaruddin was confronted with the fact but he failed to justify the act of revalidation of EDB Quota for year 2019-20 on the provided data/documents and proper verification of INPUT/OUTPUT RATIO. vi. That, as evident from IORC, Invoice and Packing List, the importer was allowed to import Electro galvanized Coils Sheets of 1 mm, 2mm and 3mm specifically. However, steel coils of irrelevant thickness ranging from 0.33 to 2.25 mm were imparted and grossly misdeclared as steel coils of 2 mm. Hence denied.
L. That the contents of pars K need no comments.
K. That the contents of para L need no comments.
16. Arguments heard from both the sides and examined the case record. The Directorate's case is mainly that the appellant importers, with the connivance of their clearing agent and other accomplices, named in the show-cause notice as well as in the Order-in-Original, have availed an in-admissible exemption under SRO 655(I)/2006 dated: 05-06-2006, causing loss to the Government's exchequre to the tune of Rs. 23.85 millions, thus, violated the provisions of Sections 19, 32(1), 32(2) and 32A of the Customs Act, 1969, punishable under clauses (10A), (14) and (14A) of Section 156(1) ibid. The appellant importers' reply / defense to the Directorate's allegations is that the Directorate has acted unlawfully, without jurisdiction and with false presumption allegations on fabricated facts / basis. The "mis-declaration" charge on the appellants is based on the following aspects:- i. description on the In-Bond GDs was differ with the description as per invoice and packing lists; and ii. sizes of the imported steel sheets coils, as mentioned on the invoice, packing list and B/L, are not matching with the sizes allowed by the EDB to the appellant importer as an input material.
Whereas in the contravention report the Directorate has also alleged that a) that as per IRS and EDB's record / documents the appellant importers' unit is located at "Plot No. 13, Tando Yosuf Road, Zamzam Industries Colttage Area, Hyderabad" whereas on the Directorate's Team's visit it was found that the appellant (M/s. Essa Steel)'s unit not existed rather a small industrial unit with the name of "A.R Industries", employing 810 workers, was found, hence, the unit of A.R Industries was shown as their unit by the appellant importer; b) that the fictitious sales, through flying invoices, was shown and the imported goods were sold in the market in the same state without any manufacturing; and c) that the role of the EDB's officials who issued the Input-Output Ratio and the Capacity Utilization Certificate was not ascertained due to Budget 2020-21 exercise and Covid-19 Pandemic exercise.
During the hearing proceeding before this Tribunal the Directorate has further alleged that the consumption reports, submitted by the appellants, for the imported input material, showing the per unit consumption of 7.99 kgs for a Motorcycles' silencer whereas the average consumption of a Motorcycle's silencer is about 4.01 kgs for a unit.
17. It is also pertinent to mention here that during the proceedings before this Bench, Mr. Saddurddin, Assistant Manager (EDB), appeared and submitted the following clarification, vide letter dated 04.04.2023, about their acts / role in the subject matter of appeal. Their clarification, inter alia, contains the following:- i. It is clarified that, EDB granted the quota to M/s. Essa Steel after due process of scrutiny of documents / information provided by the firm of the manufacturing unit, verification of facilities and based on determination of input Output Ratio and Wastages of raw materials used for the manufacture of automotive components / Assemblies. It is clarified that, EDB inspects the in-house manufacturing facilities of the vendor at the time of issuance of initial manufacturing certificate and to determine IOR for inclusion of new input items. The IOR was issued subject to various conditions and it was subject to cancellation retrospectively, if found that firm miscleclared or concealed any material facts. Therefore, any allegation on the basis that the appellants do not have their own industrial unit is unfounded and unsubstantiated. ii. Upon letter received from Directorate General of Intelligence and Investigation Customs, Karachi which indicated that Essa Steel does not have in-house manufacturing facilities used for manufacture of automotive parts covered in the IORC at given address. The EDB's technical team revisited the facilities of M/s. Essa Steel and it was transpired that M/s. Essa Steel was not operational at their approved premises located at Plot No.13, Tando Yousaf Road, Zamzama Industries Cottage Area, Hyderabad. The team observed that M/s. Essa Steel is dubious / suspected. On the basis of physical verification the IORC issued in favour of M/s. Essa Steel Hyderabad was cancelled with immediate effect on April 08, 2021. iii. The consumption record submitted by the firm was audited and it was found that consumption record for the year 2019-20 contained errors. After examination of the consumption record it was observed that the firm used excessive material for the parts allowed in the IORC for the years 2018- 19 and 2019-20. In view of quota misuse the matter was referred to the Collector, Model Customs Collectorate of Appraisement with the request to carry out chain audit of the firm and recover the duties and taxes as per law. It is submitted to carry out chain audit and recovery of duties and their adjustment does not relate to EDB. The Customs authorities have the mandate to take appropriate action, carry out chain audit, recover duties as per law, if mis-use of quota, tax evasion, mala fide, tempered documents, etc., is established.
18. After perusal of the charges framed against the appellants and conditions of the relevant SRO, as well as the submissions of both sides, the following have been observed:- i. The "Goods Declaration" means a declaration (GD) filed by an importer, under Section 79(1) of the Customs Act, 1969, for release of the imported goods for home consumption after due payment of duties / taxes, if any, subject to checking of the GD by the Customs in terms of Section 80 of the Act.
In the case of In-Bond GD the goods are warehoused after checking and the goods are cleared after payment of duty / taxes, if any, through Ex-Bond GD, filed under Section 104 of the Act. The particulars of an invoice, packing list, B/L, etc., are merged into the GD and to check the "declaration" of an importer the GD's particulars are to be considered for the purpose of charging a person for "mis-declaration" within the meaning of Section 32 of the Act. Further, for charging a person for the violation of Section 32A of the Act, the department has to prove the submission of some fake or manipulated or fabricated documents by the declarant importer, which is missing in the subject case, thus, keeping in view the fact and circumstances of the case, as gathered from the submissions of both sides, it is neither a case of "misdeclaration" nor a case of "fiscal fraud" within the meaning of Sections 32 and 32A of the Customs Act, 1969, prima facie, rather it is just a case of Section 19 of the Customs Act, 1969, which needs to be examined as per the conditions of the SRO 655(I)/2006 dated: 05-06-2006; ii. According to manufacturing of "silencers" for Motorcycles. The Directorate, during proceedings, informed that the appellants have submitted the consumption report, per condition No. (ix) of the SRO, by declaring the raw material consumption of 7.99 kgs per unit whereas allegedly the per unit consumption is 4.01 kgs, if compared with the other manufacturers of the silencers of Motorcycles.
This submission of the respondent Directorate is impliedly confirming that instead of sizes the weight-wise consumption of the imported raw material / steel sheets matters for determination of the lawful consumption for exemption. Thus, it is clear that even if there was/is any variation in sizes the same carries no substantial weightage to charge the appellant importers for evasion of duties / taxes by availing an in-admissible exemption on account of seizes of imported Iron and Steel Sheets or non compliance of the conditions of the SRO. The EDB in their aforesaid letter dated: 04- 04-2023 has also just pointed out the consumption of excessive material not the sizes and asked the Collector of Customs, Appraisement, for recovery of duties / taxes, if any, on mis-use of quota, after chain audit. iii. It is an admitted fact that the appellant was registered as an importer-cum-manufacturer with EDB, as confirmed by EDB vide sub-para (i) of their aforesaid letter dated: 04-04-2023, and has got registration of their manufacturing facilities for unit at the address located at "Plot No. 13, Tando Yosuf Road, Zamzam Industries Cotage Area, Hyderabad" whereas on the Directorate's Team's visit it was found that instead of the appellant (M/s. Essa Steel)'s unit an industrial unit with the name of "A.R Industries", employing 810 workers, was found on the given address, hence, it was alleged that the appellant's unit not existed rather the unit of A.R Industries was shown as their unit by the appellant importers. The EDB, after verification of this position, has cancelled the I.O.R.C, w.e.f. 08- 04-2021, issued to the appellant importers. Apart from the discrepancy of the changed name, there was / is no denial to the fact that the manufacturing facilities of the output goods was available on the given address of the unit, thus, on or after 08-04-2021, the appellants were not entitled for exemption under SRO 655(I)/2006. The said charge has been examined in the light of conditions Nos. (i), (ii), (iii) and (xii) of SRO 655(I)/2006. The condition (i) clearly states that the importer-cum- manufacturer ought to show whether they have "suitable" in-house facility for manufacturing of the output goods and thereafter the EDB shall determined the extent of quota of raw material / input goods with an analysis through I.O.R.C, in terms of conditions (ii) and (iii) of the SRO.
Admittedly, the I.O.R.C was issued by the EDB to the appellants after due verification of the manufacturing facility at the given address, thus, the conditions No. (ii) and (iii) of SRO were fulfilled. It is also pertinent to mention here that according to the condition No. (xii) of the SRO an importer-cum-manufacturer can get the goods manufactured through another manufacturer (sub-vendor). It is also an admitted fact that on the given address an industrial unit, operational with 810 workers was / is existing, having suitable in-house manufacturing facility. Therefore, considering the spirit of availing exemption under SRO 655(I)/2006 was under broader sense complied by the appellants getting the manufacturing of the output goods, from another manufacturer, having suitable in-house facility. Therefore, any allegation on the basis that the appellants do not have their own industrial unit have no material effect, particularly on the imported raw material, which was otherwise consumed in manufacturing of the output goods as per Table to the SRO 655(I)/2006. iv. That the fact of consumption has been impliedly accepted by the Directorate, while alleging that the appellant has shown the excessive consumption of raw material i.e. 7.99 kgs per unit instead of 4.01 kgs per unit of Motorcycle silencer. The EDB, vide their letter dated: 04-04-2023, has also confirmed the consumption of the input material for manufacturing of the output goods, thus, prima facie, it may be a case of excessive consumption to be considered as an inadmissible exemption, however, for such an allegation of an "excessive" in-admissible consumption of the raw material (input) concrete findings, through chain audit was required, which is missing in this case.
In the presence of the EDB's I.O.R.C, applicable till 08-04-2021, showing input / output ratio of consumption of the imported raw material, as per conditions (iii) and (v) of the SRO 655(I)/2006, the appellant cannot be charged on this account by the respondent Directorate till correct extent of the excessive consumption through chain audit by the Collectorate of Customs; vi. The respondent Directorate has also alleged the appellants about the issuance of "Flying Invoices" for sale of the output goods. In this regard, first of all it has been observed that the said matter relates to "supply and for that the I.R.S authorities have an exclusive jurisdiction. Even otherwise as per the conditions of the SRO 655(I)12006, the complete round for availing exemption completes on communication to the concerned Collectorate of Customs (Imports), in writing, about the consumption of the input raw material in manufacturing of the specified output article, in terms of condition (ix) of the SRO. The EDB's aforesaid clarificatory letter dated: 04-04-2023, and the respondent Directorate's own submissions are, prima facie, giving credence to the fact that said conditions (ix) was compiled with by the appellants. vi. According to the condition (x) of the SRO 655(I)/2006, even if there was an information about evasion of duty / taxes through an in-admissible exemption in that case too, the matter was ought to be communicated to the Collector of Customs, having jurisdiction, who allowed imported input raw materials' release. As per condition (x) of the SRO the Collector of Customs has exclusive jurisdiction to initiate proceedings for the recovery of duty / taxes, if any, due to non-consumption or mis-appropriation of the imported input goods by an importer. Even an "audit" or "investigation" can only be undertaken by the specific person or agency, duly designated by the EDB and FBR. The EDB, vide aforesaid letter dated: 04-04-2023, has categorically clarified that in such a case, when detailed chain audit is required, the Collectorate of Customs has sole exclusive jurisdiction. The respondent Directorate has failed to produce any "authorization" in terms of condition (x) of the S.R.O, thus, the actions of the respondent Directorate are without jurisdiction. Further, considering the notification SRO 486(I)/2007 dated: 09.06.2007 issued under Section 3E of the Customs Act, 1969, the officers of Directorate General of Intelligence and Investigation-Customs has no jurisdiction to investigate the matters relating to Section 19 of the Customs Act, 1969, thus, keeping in view the provisions of Section 6(2) of the Act, read with condition (x) of the SRO 655(I)/2006, the respondent Directorate has acted without jurisdiction.
19. In view of the aforementioned facts and the legal position, we are of the considered opinion that the Respondent has failed to establish its case and legality of actions taken by him without jurisdiction, the impugned Order-in-Original is hereby set aside and the instant appeal is allowed.
20. Judgment passed and announced accordingly.