JUDGMENT: SALEEM AKHTAR, J.-1. The petitioner entered into a contract with M/s. Overseas Enterprises Singapore for export of neckties of the value of U.S. $ 45,000 at the rale of U.S. $ 2 per piece FOB.
Under the contract the goods were to be strictly according to samples and specification which provided that ties will be made of "imported tie cloth" in different colours and shades. For the performance of this contract, the petitioner approached the respondent No. 1 for an import licence for importing necktie cloth and a licence, dated 12th March, 1984 was issued. The petitioner opened a letter of credit on 15.3.1984 and the cloth for manufacturing neckties was imported in cut pieces at the rate of $ 0.21 per lb. (1-5 yards) and US. $ 0.15 per lb. (1/4 to one yard) C & F Karachi. This cloth was supplied by Overseas Enterprises Singapore, the purchaser of neckties. On arrival of the goods the petitioner filed bill of entry with the customs authorities. The customs authorities refused to clear the goods treating them to be art silk cloth which are used for ladies garments and not suitable for manufacturing neckties. The value declared by the petitioner was also not accepted.
Accordingly show cause notice, dated 11th July, 1984 was issued by the Deputy Collect-, tor of Customs stating that the imported cloth was not suitable for the manufacture of neckties and its value was higher than the declared value. The petitioner replied this notice repudiating the allegations and pleaded that the imported cloth consists of cut pieces and not rolls (Thans) of cloth, as it was cheaper. The Deputy Collector of Customs by order, dated 4th October, 1984 held that the cloth was not suitable for manufacturing neckties and ordered its confiscation. The petitioner filed an appeal , before the Collector of Customs which was dismissed on 13.11.1984, and a Revision filed before the Central Board of Revenue met the same fate. The petitioner had first filed the petition before the Revisional Order was passed, but after the decision in the Revisional Application, the petition has been amended, lt may be mentioned here that at the time the licence was issued, the petitioner had furnished a bank guarantee to the effect that in case the goods manufactured by the petitioner are not exported within 90 days, the respondent No. 1 would be entitled to encash the same. The petitioner has pleaded that it has not been able to perform the contract within 90 days as required by the guarantee as well as by the foreign purchaser due to illegal, and unlawful action of the respondents No. 2 to 4. In the counter-affidavit filed on behalf of the respondents No. 2 to 5 it was pleaded that the imports were made in flagrant contravention of Import Policy Order, and the petitioner has not come with clean hands. While pleading that the order passed by the respondent is legal, and in accordance with law, it was stated that since the imported goods were other than neckties cloth, import whereof was restricted under the relevant Import Policy Order, it was imported in contravention of section 16 of the Customs Act, and deliberate attempts were made to deprive the Government of its legitimate revenue. It was further averred that the declared value was also found on the lesser side, as the value fixed under the circular No. 2 of T983, dated 15.2.1983 of identical goods was U.S. $ 1 per lb. And imported consignments were adjudicated at this ascertained value. It was stated that from inquiry also the under-valuation was established. The fact that the imported cloth were not suitable for making neckties, was also confirmed by the Ministry of Commerce.
2. Mr. Khalid Anwar the learned counsel for petitioner contended that the respondent No. 4 while deciding the case has relied on the opinion of the Ministry of Commerce, and the same was accepted without even disclosing to the petitioner, its nature and contents, In this regard the learned counsel has referred to the departmental notings made on the bill of entry and the relevant passage from the counter-affidavit whereby the fact that letter of Ministry of Commerce was received has not been denied.
3. The petitioner had imported the goods against import licence issued for neckties cloth without specifying the I.T.C. Classification which were mentioned as follows:-- "Neckties cloth respective numbers".
The import licence was in the nature of advance licence against bank guarantee. When the goods were imported and bill of entry was filed by the petitioner, the same were examined and it was noted that it was art silk of different designs, colours, patterns and sizes from 1/4 yard to 1 yard to 5 yards. The Assistant Collector of Customs has put a note that it cannot be used for the manufacture of neckties. This remark is, dated 2.6.1984. There is another departmental note, dated 7.6.1984 in which it has been stated that "the licence issued for neckties cloth indicates respective numbers and there is no hard and fast line of demarcation by virtue of which a particular cloth can be excluded from the manufacture and preparation of neckties which is to be marked out regarding the licence position. Other consignment of neckties cloth have been imported against the licence issued under R.M.R. Whereas under reference case licence had been issued under advance licencing against bank guarantee".
4. After completing these departmental notings the Deputy Collector of Customs issued notice, dated 11.7.1984. The petitioner was charged of misdeclaration of value and as the goods were not suitable for making neckties they were imported in breach of the licence produced by the petitioner. The Deputy Collector of Customs by his order, dated 4.10.1984 held that the cloth was not meant for manufacturing of neckties in arriving at this finding he has referred to the letter of the Ministry of Commerce No. 18(2)(82) IMV-I, Islamabad, dated 29.7.1984 to whom sample of cloth is alleged to have been sent, and they have also confirmed that the goods were not fit for making neckties. The respondent No. 4 has admittedly taken into consideration the letter of Ministry of Commerce to whom samples were sent, but the same was never disclosed to the petitioner at any stage. It is also not known whether the samples were drawn from the goods imported by the petitioner.
5. Mr. Liaquat Merchant the learned Deputy Attorney-General contended that as licence for import of goods was issued by the Ministry of Commerce the matter had been referred for their opinion.
The respondent No. 4 had thus obtained material against the petitioner behind its back, and passed the order much after the receipt of the letter from the Ministry of Commerce and confirming the same view in the circumstances it cannot be ruled out that the finding of the respondent No. 4 was not influenced and tainted with such evidence which had been obtained behind the back of the petitioner. This is sufficient to nullify the validity of the order passed by the respondent No. 4. In this regard Mr. Khalid Anwar has referred to Federation of Pakistan v. Sardar Ali PLD 1959 SC 25. This was a case under the Sea Customs Act in which section 167 (81) and (17) (a) were added and on the very day of the promulgation a considerable quality of foreign silk goods was seized from the godown of the respondent. The import of this cloth was restricted and they could not have been brought into country except under a licence. According to amended law the burden lay on the person found in possession to prove that the goods have beer lawfully imported, and that all relevant customs duty has been duly paid thereon. The Customs Authorities confiscated the goods giving an option to pay fine in lieu of confiscation. This order of the Customs Authorities was set aside in a Constitution petition on the ground of violation of principle of natural justice. The Federation of Pakistan filed an appeal. It was observed that in view of the new law placing a definite onus on the possessor of the goods, such a person is entitled to an opportunity of not only hearing, but. Of adducing evidence if necessary to discharge that onus. This opportunity was denied. The Intelligence Officer of the Customs had examined certain witnesses behind the back of the respondent who had no chance to cross examine them. The statements made by those witnesses were not even put to the respondent at any stage. It was observed as follows:- "We feel not a little disturbed that prejudicial action could be taken by the Customs Officers in a matter touching valuable rights to property as well as the personal liberty of the subject, on the basis of a private enquiry in which the person concerned was not allowed to partipate. It does not appear from the documents on record, although the allegation finds a place in the affidavit of one of the officers of the Department, that the Collector either conceded a right of audience or the right to establish their defence by evidence to the respondents. The Collector's order, on the contrary, appears to have been based on certain departmental reports and a consideration of the initial written statement submitted on behalf of the respondents. In our opinion the failure of the Collector to follow the correct procedure envisaged by the amended law, vitiated his order."
The legal position under the Customs Act, 1969 is not different from one which was operating under the Sea Customs Act, 1878. It is a well- settled principle that no party can be condemned on the basis of inquiry made behind his back and without his knowledge. In the present case the Deputy Collector of Customs had referred the matter to Ministry of Commerce for seeking their opinion about the nature of the goods. Relying on their opinion the order was passed against the petitioner.
As the order is passed partly on the evidence obtained or inquiries made behind the back of the petitioner without giving him an opportunity to even look into it or rebut it, the order is completely vitiated. Mr. Merchant, the learned Deputy Attorney-General contended that the order is not entirely based on the opinion of the Ministry of Commerce but the respondent No. 6 has independent of that opinion passed the order. In this regard he has referred to various departmental notes to show that from the very beginning the Customs Authorities were of the opinion that the imported goods are art silk cloth not suitable for manufacturing neckties. The notes placed on record are conflicting in nature. Although the Assistant Collector has expressed the opinion about the nature and quality Of the goods, there was another note also that the use of cloth for manufacturing neckties could not be ruled out. Finally the respondent No. 4 decided to issue show-cause notice to the petitioner.
The respondent No. 4 while deciding the matter as observed above made private inquiry and relied on the opinion of the Ministry of Commerce. The consultation or obtaining any evidence behind the back of the importer cannot be justified on the ground that the Customs Department had independently taken the same view earlier. The proceedings before respondent Ko. 4 were adjudication proceedings, independent and separate from the earlier departmental proceedings on the basis of which show- cause notice was issued. After the notice, the respondent No. 4 was to hear both the parties, evaluate their evidence and then pass the order. It is possible that in view of various similar instances bs pointed out in the departmental note, dated 7-6-1984 the respondent No. 4 may have taken a different view, but because of the evidence taken behind the back, he had to change his opinion. If any Tribunal after referring to the evidence on record has passed any order it is not possible to draw a line bifurcating the state of mind to show which part of the evidence has influenced it in arriving at the judgment, In such circumstances where there is every possibility that the judgment is tainted and.Influenced by the illegally procured evidence, it cannot be upheld.
3. The learned counsel for the petitioner has contended that the finding that the cloth can be used for ladies garments is based on surmises and conjecture, as there is no proper legal evidence to reach such a conclusion. The observation of the respondents is based on their experience and observation in day to day working and dealing with such cases, but the question is whether a cloth which is fit for ladies and children garments can be used for manufacturing neckties. The petitioner has a contract with a foreign principal for manufacture of neckties, who according to the petitioner have supplied the cloth and is prepared to accept ties made of such cloth. In such circumstances if the petitioner exports ties made of such cloth, the Customs Authorities cannot intervene in the matter on the ground that ties cannot be manufactured from this cloth. It is correct that the neckties should be manufactured of neckties cloth. The petitioner has obtained a licence for importing such cloth. The respondents No. 3 and 4 have given reasons that as -the impugned goods are of fancy pattern light texture and mostly art slik material they can be~ used for ladies garments and as lining material and neckties cannot be made out of them. The design, colour and prints may perhaps lead to no conclusive results, as it depends upon the taste of a person which differs from man to man, area to area and country to country. As the import license does not classify the neckties cloth, nor any I.T.C. Number or description has been given , unless it is established that in no circumstances the imported cloth can be used for manufacturing neckties or the imported goods do not relate to description given in the license, it will be difficult to hold that the importer has committed breach of license. In the circumstances the finding of the respondents 2 to 4 is based on presumption, -conjecture and surmises on the basis of which the petitioner cannot be charged for contravention of the import license.
7. According to the petitioner, the respondents have unlawfully and in contravention of the provision of law assessed the value at US $1 per lb. Because the value of the goods is to be assessed as provided by section T5 of the Customs Act, according to which the normal price of imported goods referred in sub-section (1) of section 23 does not mean the price which imported goods is likely to fetch in open market in Pakistan, but price which importer has paid to the seller in the country of purchase. In this regard the learned counsel has referred to Muhammad Khan Bhatti vs. Collector Central Excise and Land Customs Lahore, and others PLD 1977 Lah. 971. In this case while analysing section 25 of the Customs Act, it was observed as follows:-- "If we read sub-section (1) with sub-section (2) it becomes abundantly clear that normal price spoken of in sub-section (1) is not the price which the imported goods would fetch in the open market in Pakistan but is that price which as an independent purchaser the importer paid in the country where he bought it. It is to this price that the other costs, charges and expenses like freight, insurance etc. Should be added. Thus it is the sum total of the price paid by the importer and the cost, charges and expenses- incidental to the sale borne by him that will constitute the value of the imported goods. The effect of the assumption in clause (a) is that the goods will be deemed to have been delivered to the importer in Pakistan for the price paid at the time of purchase".
8. For purpose of levy of duty the Customs Authorities are required to determining the value of the goods. Such determination has to be made as provided by section 25. A close scrutiny of section 25(1) and (2) makes it clear that the price which an independent purchaser would have paid on the date specified under section 30, in the country where he purchased it, will be taken to be normal price 'of the goods. In this price, insurance, freight, commission, and all other charges and expenses at the port of importation will be included, lt therefore, follows that the price of the -goods in open market in Pakistan cannot be taken to be the normal price and on that basis the value of the goods cannot be determined. In this regard it may be noted that in all cases the price at which the import claims to have purchased the goods cannot necessarily be accepted as a normal price, lt can be accepted provided the Customs Authorities are satisfied that it tallies with the price- which an independent purchaser would have paid in the country Where the goods were purchased. The price in local market cannot be made a basis for determining the normal price within the meaning of section 25. The Customs Authorities seem to rely on their investigation and Custom House Circular No. 2 of 1983,. Dated 15-2-1983. N-either the nature of investigation has been disclosed nor the said circular has been produced, therefore, it is not possible to assess them or rely upon them.
9. In the present case the petitioner had furnished a bank guarantee at the time of obtaining the import license and he is also prepared to pay the duty which shall remain deposited till such permissible period within which the petitioner would manufacture and export the neckties. F On such export being made the petitioner would be entitled to the refund of the customs duty. In this view of the matter the determination of the value of goods unless it is highly arbitrary. And unreasonable will not be of much significance, In any event the Customs Authorities are expected, to assess the value of goods and determine the normal price according to law. If the respondents have been valuing the goods of G the same nature at particular rate for sufficiently long period then unless some new factors have intervened or the price in the country from where the goods were purchased has changed, it is just and proper that all Other importer should be given similar treatment. In the present case, the petitioner lias cited several examples where the normal price of similar goods has been accepted by the Customs Authorities (3 US $21 per lb. In these proceedings it is not possible to enter into disputed question of fact for determining the normal price and the same is left open to the Customs Authorities to determine according to law.
10. Mr. Liaquat Merchant has contended that the petitioner's conduct is not bona fide and in that regard he has made reference to the bill of entry filed by the petitioner. According to the learned Deputy Attonery- General the petitioner has filed the bill of entry for home-consumption and not for re-export. From this fact the learned counsel wishes to draw inference that the intention of the petitioner was to declare before the authorities the goods meant to be for home-consumption and then to appropriate it for manufacturing ladies and children garments. Such an act by the petitioner will result in the forfeiture of the security it has furnished to the licencing authority. The other aspect of the case is that the Forms provided for submission of bill of entry do not prescribe that it should be stated that, it is for re-export, In this regard Mr. Liaquat Merchant has referred to two Notifications of the Government of Pakistan, dated 17-4-1970 and. 10th May, 1974. The first notification bearing No. SRO 69(I)/70 was issued by the Central Board of Revenue under section 219 of the Customs Act framing Rules relating to "the clearance of dutiable imported goods without payment of duty, for the manufacture of the goods wholly meant for export". Under this Notification on an application by an importer who imports the raw material for manufacture of goods which are wholly meant for export and declaration made to that effect, the Collector of Customs may allow the importer to clear the raw material without payment of duty under bond to a factory which is a private warehouse licensed under the Customs Act. A procedure has also been laid down for clearance of such goods. The other Notification referred by the learned Deputy Attorney- General bears No. S.R.O. 576(0/74, dated 10th May, 1974 which has been issued under section 19 of the Customs Act and section 7 of the Sales Tax Act. It lays down a procedure for clearance of goods which are temporarily imported in Pakistan for subsequent exportation. Where such goods are imported the importer can make an application for exemption, lt provides that a party who imports goods temporarily for re-export he can obtain its clearance on furnishing a bank guarantee equivalent to the amount of Customs duty and Sales-tax and upon furnishing such bank guarantee he can clear and retain the goods for a period not exceeding six months which can be extended for another six months and if within the stipulated period it is not re-exported the bank guarantee can be enforced. It, therefore, seems clear that both the SROs apply to cases where an importer imports the goods for a temporary period with the purpose of re-exporting it.
We have inquired from Mr. Liaquat Merchant whether the importer is free to adopt any of the procedures provided by these SROs and he has frankly stated that option lies with the importer.
Therefore the importer may either clear the goods without payment of duty and keep them in a bonded warehouse and re-export them or furnish a bank guarantee for the customs duty and sales-tax and clear the goods for re-exporting them within the specified period. If the petitioner has adopted the latter procedure and filed the bill of entry for home-consumption, it cannot be assumed that the intention of the petitioner was to sell the goods in the market and not to manufacture neckties and re-export them. In any event in the show-cause notice the respondents have not at all charged or asked for explanation why home-consumption bill of entry had been filed By the petitioner. This objection therefore, cannot be sustained. We therefore, declare that the impugned orders of respondents Nos. 2, 3 and 4 were passed without lawful authority and are of no legal effect. We accordingly allow this petition, and leave the parties to bear their own costs.