' MUHAMMAD ZAHOORUL HAQ, J.--This petition is directed against the orders passed by the Deputy Collector, Custc:ns, Karachi on 6-2-1976 and the order passed in appeal by the Collector of Customs on 22-12-1976 and the final order of Central Board of Revenue, dated 21-12-1978.
2. After hearing the counsel of the parties we had allowed this petition on 13-8-1985 by a short order. Following are the reasons of the same.
3. The brief fads leading to the filing of petition are that petitioner had contracted with M/s. Dawood Holdings Ltd., Manchester (UK) on 19-6-1973 to supply them Bleached cotton cloth at the price of U.S. Cents 38 per yard F.O.B. Karachi. There was a clause in the agreement that change in custom duty will be on buyer's account. On 11-7-1973, the Government of Pakistan levied 15% ad valorem duty on export of finished cloth. The petitioner wrote to the buyers on 26-7-1973, requesting them to agree to an increase in the price of the cloth at 15% ad valorem but the buyers by their letter, dated 28-8-1973 refused to comply with that request. On 8-11-1973 the petitioner exported the Bleached cotton cloth to their buyers valued at Rs,4,27,166.29.
4. On 13-6-1975, the Deputy Collector Customs issued show-cause notice to the petitioner to the effect that the seller should have enhanced the unit price by 570 cents per yard so as to declare the unit valued at 43.70 cents per unit because 15% duty have been levied on the cloth. It was alleged that buyers and sellers are interrelated and non-increase in the unit price was on their understanding and the same was contrary to terms and conditions of the contract. It was, therefore, alleged that the goods in question were under invoiced to the extent of U.S. Dollar 6,472$ resulting in short levy of duty to the extent of Rs,9,705 and loss in foreign exchange of 6,472$. The show-cause notice asserted that documents delivered and statement made were found untrue in material particulars and misdeclaration of value attracts the provisions of section 32 of Customs Act, 1969. Petitioner were required to show-cause within 15 days.
5. On 3-11-1975, the petitioners' replied that their buyers had refused to agree to increase the price of cloth in spite of the efforts made by the petitioners and, therefore, petitioners had no option but to export the cloth at the normal prevalent market export price which had been contracted earlier.
It was asserted that despite the levy of duty the goods could not fetch higher price in the country of import. It was asserted that Customs Authorities were unable to adduce any evidence to show that the export price of the petitioner was lower than the normal export price of the goods.
6. On 2-10-1975, the Deputy Collector Customs wrote to the petitioner's counsel that contract of the exporter is the basis of the enhancement of the unit price and not evidential invoice as asked for by the petitioner.
7. Consequently, on 18-2-1976 the Deputy Collector Customs made his order and found that the petitioner had misdeclared the value of the goods as provided under section 32 of the Customs Act, 1969, because non-increase in the unit price of the 15% duty was contrary to terms and conditions of the contract and was private understanding between buyers and seller. A penalty of Rs,65,000 was imposed upon the petitioneRs, They were also directed to pay Rs,9,705 as the difference in duty. Petitioners' appealed to the Collector of Customs, but their appeal was dismissed on 22-12-1966 on the ground that export price check committee had remarked that the petitioner should have obtained increase in the price on account of levy of duty at 15% as on their instance they have been allowed reduction in price on account of reduction in duty. It was further observed by the Collector that the petitioners and their buyers were interrelated and there should have been no difficulty in enhancing the value as the contract provided for increase in price. The Collector however, reduced the penalty to Rs,40,000.
8. The revision of the petitioner before the C.B.R. Was rejected on 21-12-1978 with the observation that the transaction is obviously not between the seller and the buyers independent of each other as they are associated business houses. The plea of the petitioner that show-cause notices alleging under declaration in other cases had been vacated was not reverted to.
9. We had heard the learned counsel of both sides on 13-8-1985 and allowed the petition by a short order. Our reasons for the same are as under:-
10. Mr. Khurshid Anwar submitted that the respondents have proceeded on irrelevant consideration.
His submission is that under section 32 of the Customs Act, 1969 a person can be punished only if a declaration made by a person is found to be false in any material particulaRs, He submits that there is no finding that the declaration of the price of the bleached cotton cloth made by the petitioner was false. His argument was that there wa no material produced by the Customs Authority to show that 38 cer.,s per yard price charged by the petitioner was not the correct price charged by the petitioner and that the petitioner had actually charged something more. He further submitted that the petitioner have not been shown to have any knowledge or having any reason to believe that the declaration made by them was in any way false. His further argument is that the petitioner has been punished only because they had sold cloth to Dawood Holdings Ltd. In London which is their associate business house. The same is no reason to punish a person for declaration unless the falsehood of declaration was established on record which has not been done in the case.
11. Mr.Akmal Waseem for the respondent had relied quite heavily on section 25(5) of the Customs Act and had submitted that although under subsection (4) of section 25 the value of exported goods is the normal price which these goods would fetch on a sale in open market for exportation in the country to which the goods are consigned, between the seller and buyer, independent of each other. But he submitted that normal price is explained in section 25(5) of the Customs Act and the same should be treated as binding upon the petitioner. He elaborated that in determining the normal price of any export goods it has to be assumed that the seller has to bear all packing, commission, transport and all other costs and charges end expenses including any export duty and that these charges and expenses and duty will be included in the normal price. He, therefore, submitted that since these goods were exported on 8-11-1973 while the duty at 15% ad.Val. Had been levied on 11-7-1973 therefore, the price of these goods should have been &dared by the petitioner after increasing 15% ad valorem duty. His further submission was that since the petitioner has sold the goods to their associate in London and there was an agreement in the contract that increase in duty would be the responsibility of the buyer, therefore, the petitioner should have increased the price and should have included the duty in its price.
' We had given our anxious consideration to the points raised by the two learned counsel. Our firm view is that the respondent had not been able to establish on record that there was any falsehood committed by the petitioner in declaring the value of the goods at 38 cents per yards F.O.B. The petitioner had entered into contract with their buyers on 19-6-1973 on 38 cents per yard and after the increase in duty they had asked for an increase in price from their buyer but the same was refused by their buyer. It is correct that the buyer of the petitioner is their associate, however, the respondents had not been able to establish that there was any other person in U.K. To whom such goods were sold in the relevant period @ 43 cents per yard F.O.B., and in these circumstances the association or relationship of the petitioner with their buyer was of no consequence.
12. Merely because a duty is levied or increased on export goods from Pakistan it cannot automatically mean an increase in the price of A value of those goods in the foreign market unless and until the foreign markets show their inclination to accept the increase in the price. The same depends upon the supply and demand position. It is correct that the contract did stipulate an increase in price on account of the levy of export duty but a contract is after all a contract between the buyer and seller, and a buyer could, in some cases, legitimately refuse to increase the price because it is unable to see any profit in the increase price. Even two brothers may differ on terms of contract.
13. We cannot loose sight of the fact that under section 25(4) the value of the exported goods is the normal price of those goods in the open markets in the foreign country. The assumption in subsection (5) of section 25 allows the determination of the normal price of exported goods on the basis a the assumption contained therein but the same does not mean that if a seller is not able to find a buyer who is willing to an increase in the price of the goods on account of the levy of duty even then the seller is obliged to make a declaration that the value of the goods is the value inclusive of the duty levied. In fact if the petitioner had made a declaration in respect of these goods that they were of value of 43 cents per yard F.O.B., in spite of the fact that the petitioner had a buyer only for 38 cents per yard F.O.B., then the petitioner would have been guilty of false declaration. But in the present case the petitioners could not be held to have made a false declaration as they had correctly stated that the value of the goods which they had contracted to sell was only 38 cents per yard F.O.B.
14. The maximum that the respondents could do, in a case where no other circumstances existed negating the assumptions, that on the basis of assumption made in section 25(5) of the Customs Act they could assess the value of the goods, sent by the exporter, as if it was inclusive of the duty levied in Pakistan on its' exports. This would be based on a mere legal fiction and supposition only, and not an actual fact. Assessm ent to be made by the Customs Authority of exported goods has to be based on reasonable enquiry and the assumptions for assessment under section 25(5) can serve a purpose but they alone cannot be the sole basis and do not empower the customs authorities to shut their eyes from other circumstances.
15. It cannot be gainsaid that value of goods worked out merely on basis of assumptions under section 25(5) could be quite different from the actual value obtained by a seller in Pakistan for its export goods in outside world. And in such cases if the seller makes a declaration that he had sold the goods for a particular price in an outside country then his declaration cannot be completely brushed aside or treated to be false merely because certain assumptions are to be made by the assessing authority. The falsity in respect of the value of the goods will depend upon its normal price in the foreign country and unless and until that evidence was established the petitioner could not be punished for having made a false declaration of price.
15-A. The respondents having made their decisions, merely on the presumption that since the buyer of the petitioner was associated with them, therefore, the price was not real and the price was not increased as a result of private understanding between them were completely unjustified.
This is fanciful and arbitrary presumption without any basis and thus the petitioners have been proceeded against on irrelevant considerations and unjustified basis in this case. In fact the relationship of an associate has to be ignored for the purposes of making an assessment if the independent evidence was available in respect of the price prevalent in the foreign country.
16. The respondents would have been more justified to punish the petitioner for a false declaration if they had been able to show that the prevalent normal price in U.K. Was 43 cents per yard F.O.B.
But they did not produce such evidence and merely contented to place their reliance on the contract and proceeded to punish the petitioner, because they had not been able to prevail upon their associate in U.K. To agree to increase in the price because the duty had been levied in Pakistan. This was hardly any reason to punish the petitioner in the absence of any other evidence, which has been found to be completely lacking in the case. On the contrary we find some justifications in the submission of the petitioners company that the other persons who had been issued similar show-cause notices were not punished and merely duties were charged from them.
We, therefore, do not find any justification for imposing any penalty upon the petitioneRs,
17. As for the imposition of additional duty of Rs,7,905 upon the petitioner is concerned, the same is based upon the contract made by the petitioner with its buyer before the imposition of ad valorem duty of 15%. The contract had contained the clause that in case of imposition of duty the same had to be borne by the buyer. But in this case the buyer had refused to bear this additional burden. The goods were supplied by the petitioner to its buyer at the previously agreed rate of 38 cents per yard and since this rate had been agreed upon before the imposition of the 15% duty, therefore, it cannot be alleged that 38 cents price was inclusive of the duty imposed. Moreover, since the contract had provided for payment of duty by the buyer, therefore, it could not be assumed in this case that the petitioner as seller had included the newly-imposed duty in the price as assumed under section 25(5). Therefore, in these circumstances there could be no justification to charge additional duty which could be charged on the assumption that the petitioner had sold the clothes at 43 cents per yard.
18. Since the department had not been able to establish that 43 cents per yard was the prevalent market price at that time in U.K. For such cloth, therefore, there was hardly any justification to charge' additional duty.
19. Argument could be advanced that the assumption under section 25(5) of Customs Act could be made in law that the duty of 1515 was included in the price or should have been included in the normal price or value of these goods. This assumption could have some justification ordinarily. But this assumption is a fiction in law and this assumption under section 25(5) had been clearly displaced by the admitted fact that the previously agreed price was 38 cents and the further fact that the contract of sale had clearly stipulated that export duty would be the responsibility of the buyer and not of the petitioner as it assumed under section 25(5). Further rebuttal of the assumption was provided by the refusal of the buyer to increase the price after the imposition of duty and in this respect the association of buyer and petitioner is of no consequence when we have no evidence of any other price prevailing in U.K. For this cloth. There is, therefore, no escape from the conclusion that in this particular case there was no justification for the additional duty.
20. Mr. Khurshid Anwar Shaikh had further submitted that para. 6 Chapter X of Customs Valuation pointed at Brussels provided that in case the price of the goods inclusive of the export duty then the duty would be charged only on the price of the goods exclusive of the duty. Mr.Akmal had replied that section 25(5) of Customs Act was a provision of our law and the same had to be applied as it is and that if there was any inconsistency between a Pakistan Law and an International convention then the provisions of our law shall prevail. This argument appears to be attractive but it is not necessary to decide this point in the present case because we have reached conclusion that the petitioner should succeed on other points already dismissed.
20-A. These are the reasons of the short order passed by us on 13-8-1985 allowing the petition.