SHAKIL AHMED ABBASI, MEMBER JUDICIAL III. By this judgment, i intend to dispose of Customs Appeal No.K-281/2019 dated 22.02.2019 filed by the Appellant against the Order-in-Original No.622/2018 dated 26.12.2018 passed by the Additional Collector of Customs, (Adjudication-I), Karachi.
2. Brief facts of the case are that Appellant had imported two consignments of Sofpren (TPR)
Thermoplastic Rubber vide GD No.KPPI-HC-76680 dated 24.06.2016 and GD No. KPPIHC-0108 dated 01.07.2017 and had claimed classification thereof under PCT heading 4002.9900 as a Synthetic Rubber. The Appellant discharged their liability and paid due taxes to the Government Exchequer.
The Respondent Collectorate accepted the classification of the goods under declared PCT heading 4002.9900 and allowed clearance of the impugned goods by granting benefit of zero rate of sales tax under the Notification SRO. 1125(I)/2011 dated 31.12.2011.
3. The GD bearing number KPPI-HC-76680 was filed on 24.06.2016 wherein the Appellant paid sales tax (@3% amounting to Rs.100,068/- along with other taxes. The GD bearing number KPPI-HC-0108 was filed on 01.07.2017 whereas the sales tax was paid "Nil" along with other taxes. The Respondent Collectorate allowed clearance of the Thermoplastic Rubber (TPR) under the provision of Section 83 of the Customs Act, 1969. After clearance of the goods from the Respondent Collectorate, the Appellant consumed the raw material used in shoes for the manufacturing of sole.
4. Adjudicating proceedings culminated into passing of Order-in-Original No. 622/2018-19 dated 26.12.2018 passed by Additional Collector of Customs (Adjudication-I), Karachi as under:- "I have gone through the record of the case as well as the verbal and written arguments of both parties. The charges levelled in the show-cause notice are stand true as importer failed to justify the PCT claimed by him and the benefit of SRO 1125(I)/2011 is also not available to them as the impugned goods were clearly "Compound Rubber" as per public notice No.3/2014 i.e. classification ruling of Thermoplastic Rubber dated 25.06.2014. Therefore, the importer is liable to pay all the recoverable duty and taxes. Moreover, importer is awarded penalty of Rs.500, 000/- for mis- declaration."
5. Appellant being aggrieved with the aforesaid impugned 'order passed by the Adjudication Officer filed the instant appeal before this Tribunal and has assailed the impugned order inter alia on the following grounds:- I. That the above named appellant had imported two consignments of SBS Thermoplastic Rubber
(TPR) in granule form of assorted colors of Sofprene brand and cleared the consignments vide GD Nos.KPPI-HC-76680 dated 24.06.2016 and KPPI-HC-108 dated 01.07.2017. The classification of the impugned goods were claimed under PCT heading 4002.9900 and the appellant had also claimed zero rating of sales tax under Notification SRO 1125(I)/2011 dated 31.11.2011. The consignments were examined in both the cases and examination report were reduced by the examination staff. In both the cases the examination report were available and reproduced as below:- "CONTAINER NO: MEDU1800910"
EXAMINED: The container on the basis of Goods Declaration retrieved through the WEBOC system upon physical examination goods have been found SBS SOFPRENE Thermoplastic Rubber (TPR) in granule form assorted color packed in PP Bags each 20 kgs I/O Italy quantity verified as per GD checked weight 100% vide QICT weight Slip No.7403521 dated 03.07.2017 found 15150 Kgs. Group may check PCT and all other aspects"
"CONTAINER NO: UACU3596858"
EXAMINED: The goods on the basis of GD / DATA retrieved through WEBOC system. Description....
Thermoplastic Rubber (TPR) in Granule (SBS Compound) Packed in Bags Each bag net weight 25 Net Kgs Brand Sofprene I/O Italy print on bags ... checked weight 100% vide PICT slip No.3196518 dated 27.06.2018 found weight 17220 Kgs. Group to check PCT Value and all other aspect images are attached..... Invoice found w/o any discrepancy."
On the basis of the examination reports and on the basis of declarations and as per attributes declared by the above named appellant the assessment was made and the goods declarations were gate out and both the consignments were cleared for home consumptions under the provision of Section 83(1) of the Customs Act, 1969. The clearance was made as per law and there was no mis-declaration of the goods.
2. That the Respondent after lapse of two (02) years got issued show-cause notice dated 10.08.2018 alleging that the impugned goods would be classified under PCT heading 4005.1090 as per Public Notice No.SI/Misc/16/2018-G.IH and were chargeable to customs duty @ 1 % and benefit of SRO 1125(I)/2011 dated 31.12.2011 was not admissible. It was also alleged that the above named appellant had defrauded the government revenue amounting to Rs.24,90,731/and committed an offence within the meaning of Sections 32(1), 32(2) and 79 of the Customs Act, 1969 read with Section 33 of the Sales Tax Act, 1990 further read with Section 148 of the Income Tax Ordinance, 2001. The offence was. punishable under clauses (1) and (14) of Section 156(1) of the Customs Act, 1969 read with Section 36 of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001. The above named appellant deny all the above allegations as these are baseless and without any legal footing. The above named appellant has imparted SBS SOFPRENE Thermoplastic Rubber (TPR) of PCT heading 4002.9906 covering Synthetic rubber in primary form. The impugned goods are in grannuale form which are formulated using styrenebutadyne-styrene (SBS) Block Co polymer. The material has the same property as that of valcunized rubber but it can be molded and extruded using conventional thermoplastic process equipment. The thermoplastic processing provides advantage over valcunized thermoset rubber which are processed using a slower and most costly curing process.
Both the goods declaration were cleared without extracting representative samples for test purposes and the declaration of the above named appellant was accepted. The allegation that the impugned goods was compounded rubber of PCT heading 4005.1020 was without any material evidence as the test report of the Custom House Lab or of any other laboratory was not available and neither literature of the product described the impugned goods as compounded rubber. The allegation at such a belated stage was without any proof and the appellant furiously alleged that a Public Notice of Classification Ruling pertaining to another product namely "GOMMA THERMOPLASTIC IN GRANNU ALES" dated 25.06.2014 was issued which classified the product under PCT heading 4005.1090 therefore, the impugned goods should also be classified as per aforesaid Public Notice. The respondent failed to appreciate that the Gomma Thermoplastic in Grannuales form was tested in the PCSIR Laboratory which had confirmed that it contained plasticizer (5%) styrene butadync co polymer (85) carbon black (2%) and Carbonate of Calcium and Magnasium (8o) on filler. The Classification Centre determined Classification on the basis of test report under PCT heading 4005.1090. The plasticizer and other fillers are not present in the impugned case therefore, the same could not be classified as Compounded Rubber. It is submitted before the Honorable Customs Appellate Tribunal that the:
5. (A) Heading 40.01 and 40.02 do not apply to any rubber or mixture of rubbers which has been compounde, before or after congulation, with; i. Vulcanizing agents, accelerators, retardors or activators (other than those added for the preparation of prevulcanized rubber latex). ii. Pigments or other colouring matter, other than those added solely for the purpose of identification. iii. Plasticizers or extenders (except mineral oil in the case of oil extended rubber), filters, reinforcing agents, organic solvents or any other substance, except those permitted under (B): iv. The presence of the following substances in any rubber or mixture of rubber
(B) The presence of the following substances in any rubber or mixture of rubber shall not effect its classification in heading 40.01 or 40.02, as the case may be, provided that such rubber or mixture of rubbers retains its essential character as a raw material: i. Emulsifiers or anti-tack agents; ii. Small amounts of breakdown products of emulsifiers: iii. Very small amounts of the following: heat-sensitive agents (generally) for obtaining thermo sensitive rubber latexes, surface-active agents (generally for obtaining electropositive rubber latexes), antioxidants, coagulants crumbling agents, freeze-resisting agents, peptisers, preservatives, stablizers, viscosity-control agent, or similar-special purpose additives."
The impugned goods (SBS SOFPRENE Thermoplastic Rubber (TPR) in Grannale form) did not contain any of the material mentioned in Chapter Note 5(A) therefore, the same could not be treated as a Compounded Rubber. The Public Notice categorically classified Gomma Thermoplastic as it contained Plasticizers, carbon black, filler, carbonates of calcium and magnesium in styrene butadyne copolymer. The criteria for differentiation between synthetic rubber and compounded rubber has been explained under Chapter Note 5(A) which has been incorporated in the Public Notice for classification and differentiation between the two types of rubber. In view of the above, the impugned goods are synthetic rubber appropriately classified under PCT heading 4002.9900 and the classification declared by the above named appellant is correct and in accordance with the criteria mentioned in the chapter notes to Chapter 40. The contention of the respondent is therefore, without any lawful basis therefore, the same may be rejected.
3. The contention of the respondent that the appellant has misdeclared the PCT heading in order to avail undue benefit of exemption of sales tax under SRO 1125(I)/2011 dated 31.12.2011 is not correct.
The above named appellant has bonafidely and correctly declared the description and PCT heading and also claimed benefit of the Notification SRO 1125(I)/2011 dated 31.12.2011. The aforesaid Notification covers Thermoplastic Rubber against Sr.No.102 with the description Thermoplastic Rubber (TPR) classified under PCT heading 4002.9900. The above named appellant is a registered manufacturer of the five sectors mentioned in condition (i) of the Notification and the impugned raw material is specified in columns 2 and 3 of Table-1 and further that the impugned goods would be for in-house consumption by a registered manufacturer therefore, the benefit of the Notification SRO 1125(I)/2011 dated 31.12.2011 is admissible and value added tax was not leviable. The contention of the respondent is therefore without any proof therefore, the same has no weight in the eyes of law. It is therefore, requested that the zero rating sales tax on the impugned goods is admissible under the aforesaid Notification and the Honorable Tribunal may pass an order that the appellant has correctly availed benefit of the Notification at the time of clearance of the impugned goods.
4. That it is submitted before the Honourable Customs Appellate Tribunal that neither the clearance Collectorate nor the Adjudicating Authority has the jurisdiction to recover sales tax or withholding tax after release of the goods. The jurisdiction rests with the designated officer of Inland Revenue. The show-cause notice is therefore, defective and have been issued without jurisdiction and power therefore, the same is unlawful, illegal and without any legal authority.
Needless to mention that Section 36 of the Sales Tax Act, 1990 was omitted in the year 2012 but the same had been invoked even after lapse of six years. The show-cause notice did not contain the relevant section (11 (3) of the Sales Tax Act, 1990) for the recovery of the Sales Tax. This further made the show-cause notice defective and the Adjudicating Authority has no power and functions to enforce the recovery of sales tax and income tax as held by the Honorable Islamabad High Court in the Case of Oil and Gas Development Corporation, Islamabad.
5. That the MCC Port Muhammad Bin Qasim has no power under the Customs Act, 1969 to conduct audit of the above named importer and prepare a contravention report. The Collectorate has transgressed the powers of Post Clearance Audit (PCA) and issued the contravention report. The clearance Collectorate can only file an appeal under the provision of Section 193A of the Customs Act, 1969 or the Collector of Customs may reopen the case under the provisions of Section 195 of the Customs Act, 1969. The Collectorate has, not adopted the prescribed legal course and issued show-cause notice without jurisdiction. The above named importer has not committed any mis- declaration of description and has neither connived with any officer of the Customs therefore, provision of sections 32(1) and 32(2) cannot be invoked in the show-cause notice. The consignment in both the cases have been examined and in the examination report that it has been confirmed that no discrepancy has been found which means that the declaration and other attributes of the impugned goods are found in accordance with the declaration. The assessment officer had made the assessm ent of the impugned goods under subsection (3) of Section 80 of the Customs Act, 1969 therefore, an assessment order (being appealable under section 193 of the Customs Act, 1969) was passed and the clearance Collectorate has no authority to / issue recovery notice in such cases.
6. Respondent filed parawise comments which are reproduced as under:-
1. That the contents of Para I are repetition of previous Paras for which reply has been given. It is however, reiterated here that in the instant case the appellant imported two(02) consignments vide GD No. KPPI-HC-76680 dated 24.06.2016 and KPPI-HC-0108 dated 01.07.2017 declared to contain "Thermoplastic Rubber TPR under PCT 4002.9900 and got the same released availing undue exemption from Sales tax @ 17%, Additional Sales Tax 3% and Advance Income Tax a 6% vide SRO 1125(I)/2011 dated 31.12.2011, resultantly into short realization of government revenue to the tune of Rs.2,490,731/-. Whereas the aforesaid goods in the light of Public Notice No. SI/Misc/16/2018.G-III (03/14 dated 25.06.2014) are correctly classifiable under PCT heading 4005.1090 wherein the benefits of the aforesaid SRO is not available and Customs duty is chargeable @11%. The above stated facts clearly establishes that the appellant misdeclared the PCT in order to avail undue benefits of exemption from Sales Tax vide SRO 1125(I)/2011 dated 31.12.2011 and lesser rate of Customs Duty, with mala fide intentions to defraud the Government from its legitimate revenue amounting to Rs.2,490,731/-. In this scenario of the case it is crystal clear that the appellant has got cleared the goods on the basis of misdeclaration of description and classification and got beenavailed the inadmissible benefit of SRO 1125(I)/2011 dated 31.12.2011.
2. That the contents of Para 2 are again repetition of previous Paras for which a detailed and comprehensive reply has given. However, as regards the issuance of show cause notice after 02 years 48 alleged by the appellant in Para under reply. It is feiterated here that Section 32 of the Customs Act, 1969 clearly provides that in case by reason of any such document or statement of by any collusion, any duty or charge has not been levied or short levied or has erroneously funded, the person liable to pay any amount on that account shall be served with a notice within (five) years of the relevant date. [0 the light of this, the clearance Collectorate has the powers and jurisdiction to prepare the contravention report for issuance of show-cause notice by the competent adjudicating authority and as such the show-cause notice issued to the appellant is very much legal, lawful and is liable to be maintained in the eyes of law. It is pertinent to mention here that the goods imported by the appellant was crystal clearly found to be "Compound Rubber" instead of declared Thermoplastic Rubber (TPR) and there is no assumption whatsoever as alleged by the appellant in Para and sub-Paras under reply. The definition and interpretation submitted by the appellant is absolutely based upon the self-imaginations whereas the Chapter Notes clearly indicates that the imported goods are classifiable under PCT Heading 4005.1090. It is further pertinent to mention here that since the description of the goods was duly confirmed and scrutinized and as such there was no need for sending the same for chemical analysis and neither the appellant has made any such request at the time of assessment.
3. That the contents of Para 3 are absolutely false, baseless, concocted and mala fide, hence vehemently denied. The fact is that this is the clear cut case of mis-declaration of description and classification thereby the appellant got availed the inadmissible benefit of exemptions and so also reduce rate of Customs Duty at stated above. It is pertinent to mention here that since the appellant declared and claimed the PCT Heading 4002,9900 whereas the goods imported by the appellant were found classifiable under PCT Heading 4005.1090 and as such the benefit of SRO 1125(I)/2011 dated 34.12.2011(sic) is not available on that PCT meaning thereby the appellant has deliberately and intentionally got cleared the goods under the incorrect PCT and availed the inadmissible benefit of SRO and so also paid the lesser Customs Duty.
4. That the contents of Para 4 are also repetition of previous Paras for which a detailed and comprehensive reply has been given. It is however, reiterated here that since the charges are payable at the time of import and as such the clearance Collectorate has the jurisdiction and power to recover the short paid/non paid amount of Sales Tax, Additional tax and so also the Income Tax as the Section 32 of the Customs Act, 1969 clearly provides that in case by reason of any such document or statement or by any collusion any duty or charge has not been levied or short levied or has 'erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within (five) years of the relevant date. In the light of this, the clearance Collectorate has the powers and jurisdiction to prepare the contravention report for issuance of show-cause notice by the competent adjudicating authority. The case law reported by the appellant has no relevancy with the instant case and as such the same is liable to be ignored totally.
5. That the contents of Para 5 are absolutely false and baseless, hence vehemently denied. The fact is that this is not the case of audit rather this is the case of post clearance scrutiny and as such the clearance Collectorate has the powers and jurisdiction to conduct the same and in case of any irregularity, non-paid or short paid amount of duty and taxes, prepare the contravention report for issuance of show-cause notice for recovery of said nonpaid or short paid amount of duty and taxes. It is again submitted that from the above submissions it is crystal clear without any iota of doubt that in the instant case the appellant has deliberately, intentionally and in bad faith misdeclared the description and classification of the goods as stated above and as such Section 32(1) and (2) have correctly been invoked against the appellant.
7. I have perused the record of the case and heard the both parties at length. It is found that both the consignments, the impugned goods were physically examined and the examination report confirmed the product to be Thermplastic Rubber (TPR) in granule form (Styrene Butadiene Styrene) of Sofpren Brand imported from Italy. In both the consignment, the description was accepted as Synthetic Rubber classified under PCT heading 4002.9900 and the Respondent Collectorate granted benefit of zero rated of sales tax under Notification SRO 1125(I)/2011 dated 31.12.2011. After release of the goods in the years 2016 and 2017 the Respondent issued show-cause notice for the recovery of sale tax. The Honorable High Court vide Judgment 2023 PTD 527 (Nestle Pakistan Ltd. v. Federal Board of Revenue and others) dated 15.11.2022 held in its operative para that the officers of the Collectorate of Customs Adjudication have no jurisdiction to recover or adjudicate any short levied/recovery of sales tax and income tax once the imported consignment 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 these extents are held to be issued without lawful authority and jurisdiction and are hereby set aside.
8. In the instant case, the show-cause notice dated 10.08.2018 was issued for the recovery of sales tax and income tax. Both the Respondent and the Adjudicating Officer has no jurisdiction to recover the amount of sales tax and income tax when the goods declaration are assessed under section 80 and gate out under the provision of Section 83 of the Customs Act, 1969. Besides that the Respondent Collectorate are applying the provision of Public Notice No.03/2014(A) dated 25.06.2014 on presumption basis as the impugned goods in both the Goods Declarations were never tested in Custom House Laboratory or in any other Laboratory while the goods covered in the Public Notice No.03/2014 (A) dated 25.06.2014 was tested in the PCSIR Laboratory and found to be Compounded Rubber. The provision of the Public Notice could not be applied on presumption basis.
9. In view of the above discussion, I am convinced that the recovery cannot be enforced on the presumptions basis that the Appellant had imported Compounded Rubber of PCT heading 4005.1090 instead of their declaration that the goods imported were Thermoplastic Rubber (TPR) of PCT heading 4002.9900. Further, that that the officers of the Collectorite of Customs and Officers of Collectorate of Customs Adjudication have no jurisdiction to recover or adjudicate any short levied/recovery of sales tax and income tax once the imported consignment which have been assessed to duty and taxes in terms of Section 80 of the Customs Act, 1969 and are released/cleared from Customs. It is now well settled law that the Respondent Clearance Collectorate as well as Adjudication Collectorate has no jurisdiction to adjudicate/recover sales tax at post release stage.
10. I, therefore, set aside the order in original passed in the case as well as show-cause notice dated 10.10.2018 and order that the sales tax is not recoverable from the Appellant and the penalty of Rs,500,000/- imposed on the Appellant is remitted as the Appellant has not committed any misdeclaration in the case.
11. The Appeal is allowed and stands disposed of in above terms with no order as to cost.