SHAKIL AHMED ABBASI, MEMBER JUDICIAL-III. This judgment shall dispose of Customs Appeal No.1898/2022 dated 19.09.2022 filed against Order-in-Original No. 120/2022-23 dated 11.08.2022 passed by Additional Collector of Customs (Adjudication-I), Karachi.
2. Brief facts of the case are that the appellant during the course of his business activities imported consignments containing E-Liquids for Electric Cigarette Kits and upon receipt of shipping documents delivered those to his clearing agent for transmitting Goods Declaration (GD) under the provision of Section 79(1) of the Act and Rule 433 of Sub-Chapter III of Chapter XXI of Customs Rules, 2001 (Rules), which he did and for availing the regime of Customs Computerized System
(CCS) deposited upfront duty and taxes in the NBP automatically calculated by the CCS after declaring values of the goods, consequent to which GDs were numbered as KPAF-HC-12825 dated 09.09.2021. Thereafter, the Goods Declarations were selected for examination, which was conducted and declaration was confirmed, consequent to which the assessing officer completed the assessm ent of the impugned goods under the provision of Section 80 and Rule 438 of the Rules thereafter the goods were released and the appellant obtained the delivery of the goods. The respondent No.2 after post clearance of the goods on 11.05.2022 issued a show-cause notice wherein he alleged on the strength of contravention report prepared by the post Release Verification (PRV), Karachi that our client had obtained clearance of a consignment of E- Flavor/Liquid under PCT 2403.1900 upon payment of 20% custom duty, Additional Customs Duty @ 7%, Sales Tax @ 17%, Additional Sales Tax @ 3%, Income Tax @ 5.5% and Regularity Duty @ 20% respectively. Whereas during a post release verification it has been found that as per amendments made in the Federal Excise Act, 2005, Serial No. 8a has been inserted in the First Schedule of Table-I of the Act wherein the E-Liquids has been placed as excisable goods @ 10 per MI in this case Federal Excise Duty has not been levied by the Clearance Collectorate which resulted in a recovery of Federal Excise Duty of 13,80,000. After the appellant received the show-cause notice the appellant through his counsel submitted a befitting reply dated 01.07.2022. Thereafter an ONO was passed by the respondent No.2 with the observation that the appellant has not paid the federal excise duty which according to them comes under the garb of mis-declaration.
3. The appellant preferred the present appeal against the impugned order in appeal passed by the respondent No.2 on the basis of grounds enumerated therein. The counsel for the Appellant Mr. Obaydullah Mirza, Advocate on the date of hearing argued the case strictly in accordance with those. No cross objections under Section 194A (4) of the Act have been filed within the stipulated period of 30 days by the respondent resultantly, they lost right of cross appeal within the contemplation of Section 194A(3) ibid. However, comments were submitted which least qualify as cross objection, instead to be treated as opinion having no warrant of law, the representative of Respondent No.1 relied upon the averment made therein.
4. Arguments are heard at length and case record perused. The Appellant's counsel at the time of hearing argued that the Respondent No.2 has not been delegated powers through the Federal Excise Act, 2005 to recover the Federal Excise Duty. He placed reliance on Sections 14(1) and 14(2) of the Federal Excise Act, 2005 along with a recent judgment of the High Court of Sindh passed in C.P.
5482 of 2017 reported as M/s Nestle Pakistan Limited v. The Federal Board of Revenue and others (SBLR 2023 Sindh 211) in which it was held that the Collectorate of Customs cannot adjudicate any short recovery of sales tax and income tax or any other taxes (other than customs duty) once the consignments are out of charge or have been finalized under section 80 of the Customs Act, 1969.
Whereas the Department Representative in their comments have admitted that such order has been passed by the High Court against the Respondent department but the same has been challenged before the Supreme Court of Pakistan through CPLA which till to date has not been admitted, as such, no stay is in field.
5. In order to decide the instant case only one question of law arises out of the appeal present before me that is: "Whether in the Fact and Circumstances of the case the Respondent department is empowered to recover the evaded amount of Federal Excise duty in the light of Section 14 (1) and Section 14(2) of the Federal Excise Act, 2005 and after the decision of an identical matter present before The High Court of Sindh in C.P. 5482 of 2017 Nestle Pakistan Limited v. The Federal Board of Revenue and others?"
6. For reaching a judicious decision I have carefully gone into the legality of the issue and perused Section 14(1) and Section 14(2) of the Federal Excise Act, 2005 which indeed gives power to recover but that A power only vests with the Officer of Inland revenue who shall issue the show-cause notice and determine the FED evaded and impose Fine and Penalty rather than the Respondent Collectorate of Customs. The same test came before the High Court of Sindh vide above referred C.P.D-5482/2017 wherein the Learned High Court also came to the conclusion that powers to recover taxes other than Customs Duty vests with the relevant departments i.e. Department of Inland Revenue rather than the Respondent Customs Collectorate. Therefore, I am quite clear in my mind to hold that the Respondent Collectorate is not empowered to recover the short paid/evaded amount of Federal Excise Duty. Sections 14(1) and 14(2) of the Federal Excise Act, 2005 and Order of the High Court in C.P.D-5482/2017 are reproduced for ready reference: "14. Recovery of unpaid duty or of erroneously refunded duty or arrears of duty, etc.
(1) Where any person has not levied or paid any duty or has short levied or short paid such duty or where any amount of duty has been refunded erroneously, such person shall be serviced with notice requiring him to show-cause for payment of such duty provided that such notice shall be issued within [five] years from the relevant date.
(2) The [officer of Inland Revenue], empowered in this behalf, shall after considering the objections of the person served with a notice to show-cause under subsection (1), determine the amount of duty payable by him and such person shall pay the amount so determined along with default surcharge and penalty as specified by such officer under the provisions of this Act."
The relevant portions of the judgment of Hon'ble High Court in C.P.D-5482/2017 dated 15.11.2022 are also reproduced hereunder: "27. It is the considered view of this Court that while the insertion of the word taxes in sections 32 and 179 of the Customs Act, 1969 confers parallel jurisdiction upon the Customs department to the extent contemplated vide the parent statutes 47, however, in either instance the ambit is circumscribed to imports and that also at the import stage, being prior to or at the time that the import/consignment has been assessed and released per sections 79/80 of the Customs Act, 1969. Therefore, the notices constituents-48 thereof prima facie related to a fiscal right based on a statutory instrument requiring no factual determination, seeking to assess recover or adjudicate any alleged short levy of income tax/sales tax, post release clearance of consignments, are determined to be patently without jurisdiction and illegal on the face of the record "
28. In view hereof, these petitions were allowed, in Court at the conclusion of the hearing, in terms of our short order dated 15.11.2022, operative constituent whereof is reproduced herein below: "For reasons to be recorded later on these petitions are allowed to the extent that the officers of Collectorate of Customs (Adjudication) have no jurisdiction to recover or adjudicate any short levy/recovery of sales tax and income tax once the imported consignments have been assessed to duty and taxes in terms of section 80 of the Customs Act, 1969 and are released/cleared from Customs. The impugned show-cause notices, only to this extent are held to be issued without lawful authority and jurisdiction and are hereby set-aside; however, the proceedings, if any, in respect of short levied sales tax and income tax can be initiated by the Officers of Inland Revenue Department, strictly in accordance with law. Office to place copy of this order in the connected petitions as above."
7. In the light of above legal position and applying the ratio decidendi set-forth by the Hon'ble High Court, I hold that the Show-cause notice dated 11.05.2022 was issued without powers and jurisdiction vested under section 14 (1) & (2) of the Federal Excise Act, 2005. Therefore, as a consequence the instant appeal succeeds and is hereby allowed. Order-in-Original bearing No, 120/2022-2023 dated 11.08.2021 is set aside being illegal and ultra vires to the Federal Excise Act, 2005 and the Customs Act, 1969. The appeal is disposed of in the above terms with no order as to cost.