JUDGMENT: PER MIAN QAMARUDDIN AHMED, MEMBER (JUDICIAL):--(1). This appeal has been directed against the Order-in-Original No, 38 of 1998 dated 09.01.1999 passed by Collector of Customs and Central Excise, Peshawar, whereby the appellant was directed to pay the evaded customs duty and taxes amounting to Rs, 1,36,07,413/- minus the amount already deposited by the appellant and also penalty equal to Rs, 40,00,000/- in terms of section 156(1), (14), (54), (59), (61) and (62) of the Customs Act, 1969.
2. Briefly the facts of the case are that on 1.10.1998 the anti evasion staff of Customs Peshawar on information visited the premises of M/s. Sardar Chemical, Gadoon Amazai, Industrial Estate and on stock taking found 11647 kgs of imported raw material i.e. chemical of different type (as in the stock taking report duly signed by the representative of the factory) short in the bonded warehouse. In addition 73752.50 kgs of imported raw material were found replaced by some waste material of which samples were drawn in the presence of the representatives of Company. A contravention report was prepared and submitted for violation of sections 7, 32, 98, 104, 107, 111, 112, 114 and 116 punishable under section 156(1), (14), (54), (59), (61) and (62) of the Customs Act, 1969.
3. A show cause notice was issued on 29.10.1998 reply to which was filed by the appellant on 17.11.1998 whereby the following submissions were made:-- "(a) That, Sardar chemical Industries Ltd. was established in 1989 and registered with the Deputy Registrar of companies, Peshawar against Registration No, P-00267 of 1989-90 (GCN-01138) for manufacture of Dyes and Chemicals at Gadoon Amazai, Industrial Estate, NWFP;
(b) That, till 1997 the company was running smoothly when all of a sudden two directors, namely Dr. Shahzad Munawar and Dr. Parveen Shahzad left the country and disappeared in August, 1997.
Dr. Shahzad was responsible for all finacial matters, appointments, procurement of raw material, imports, customs clearance, ex-bonding, Banking etc. and due to his absence the Company's work came to stand still. Later it was found that Dr. Shehzad is in USA residing with his brother. A lot of efforts were made to persuade him to come to Pakistan and resume his responsibilities or to had over the job he was doing to other directeds. He flatly refused to come to Pakistan and insisted that the companies head office should stay in Islamabad in the building which was owned by one of his companies and that he would run the operation on E-Mail. This arrangement was not possible as a result the two directors were removed and replaced by the present management according to law.
The company also sent notices to Dr. Shahzad and Dr. Parveen Shahzad through registered post on 12.4.1997, 25.04.1998 and 04.05.1998.
(c)That the process of shifting of the office from Islamabad to new site at Lahore took a long time and the entire computers net work of the Company remained suspended; (d)The staff of the Company was mainly from Islamabad and Rawalpindi and as such 6 out of total 22 members of the staff resumed duties at Lahore. This entire episode took considerable time and the new directors took many months in shifting the office of the Company to Lahore.
(e)That soon after the new directors assumed full control of the factory, the General Manager, to their surprise, requested to be relived of his duties. He resigned on 12.06.1998 but his resignation was not accepted as the new management wanted proper verification of all inventories and complete stocktaking of warehoused goods before he could be relieved. However during one of their meetings with the Custom Authorities they found that the Customs had issued letters on different dates to M/s. Sardar Chemical Industries Ltd., for arranging stock-taking. The General Manager did not inform the management about these letters and had been deliberately avoiding the stock-taking. The correspondence in this regard was not available in the factory which confirmed that the said letters were intentionally removed by the General Manager for ulterior motives. Copies of the letters were however obtained from the custom department; (f)That on 12.09.1998 Mr. Karamat Inspector Custom met the Chief Executive and informed him about the attitude of the General Manager. He brought the entire correspondence to his notice and asked that arrangement should be made for proper stock-taking, the Chief Executive without any hesitation agreed and stock-taking started on 14.09.1998; (g)The General Manager, sensing that on physical stock-taking his malpractices would come to the knowledge of the management as well as Custom Authorities, again sent a reminder on 15.09.1998 and on various pretexts requested to be relieved immediately. Again the General Manager sent a letter on 23.09.1998 to the Chief Executive requesting for 7 days medical leave. His request was accepted by the Chief Executive on 23.09.1998 and the General Manager was relieved of his duties on 24.09.1998. It was only when the discrepancies in the warehouse were discovered that the company realized the real cause of urgency that the General Manager was showing to leave the company; (h)That on 01.10.1998 the Chief Executive of Sardar Chemical Industries Ltd., met Mr. Ghulam Mustafa Assistant Collector Gadoon, Amami and informed him about their intention to clear the goods once the SRO for waiver of penal surcharge was issued. Being satisfied and feeling relieved the Chief Executive headed back to CBR to find out about the issuance of the SRO and to arrange the required funds, as the time at their disposal for clearance being very short i.e. only 15 days once the SRO was issued. However on the same day he learnt at Islamabad at approximately 1.45 p.m. that a team of officers from the Collector office, Peshawar had also reached the factory premises for stock taking; (i)That the staff of the management was informed about the discrepancies discovered during the stock taking and the amount of taxes involved, they without being responsible for these irregularities, cleared the Government dues immediately. All these facts clearly establish that the present management was given the control of the factory with all these discrepancies and shortages;
(j) The present management, who was in no way responsible for any of the discrepancies/irregularities, discovered by the department but, on the contrary were the victims of a conspiracy.
(k)That the Customs duty as on the date ex-bond of bill of entry was filed is applicable on the goods in question. In support a case reported as PTCL 1990 CL. 217 (Sind High Court, Karachi) was relied.
4. The learned Collector considering the reply and arguments held that the Sardar Chemical Industries Ltd. Gadoon Amazai have already deposited a sum of Rs, 96,94,105/- as against total liability of Rs, 1,36,07,413/- leaving behind a balance of Rs, 39,13,308/- after filing of ex-bond Bill of Entry on different dates after the detection of the case and that they have admitted their fault of removal and replacement of the imported goods from the Bonded warehouse. They were ordered that the evaded amount of Rs, 1,36,07,413/- minus the amount already deposited (calculated on the basis of rate of duty as on the date in Bond bill of entry was filed) be recovered in full if not recovered earlier. A penalty equal to Rs, 40,00,000/- (Rupees forty lacs only) was also imposed in terms of section 156(1), (14), (54), (59), (61) and (62) of the Customs Act, 1969.
5. The learned Counsel for the appellant in his arguments before us stated that:--
(i) The company was established in 1989 and registered with the Deputy Registrar, Peshawar against registration No, P00267 of 1989-90 for manufacture of dyes and chemical at Gadoon Amazai, Industrial Estate, NWFP. It worked must efficiently and paid all their taxes and dues promptly till 1997 when due to absence abroad of its two directors and their replacement in the year 1997 and mis-management by the General Manager in the said period the import material could not be properly accounted for by the new management (new directors).
(ii)The learned Collector has failed to appreciate the facts in its true perspective and has misconstrued the provisions of law while issuing the impugned Order-in-Original.
(iii)The case of the appellants is not covered by sections 207 & 208 of the Customs Act, 1969 as the earlier management was not acting as the agents of the appellants. They were responsible for all acts of commission and omission of their record.
(iv)The learned Collector has misconstrued the legal provisions and has demanded custom duty etc., as it was assessed at the time of in-bonding of the goods. While deciding the case the provisions of section 30(b) of the Customs Act, 1969 have not been taken into consideration which reads as under:-- Section 30 Date for determination of value and rate of import duty. The value of, and the rate of duty applicable to, any imported goods shall be the value and the rate of duty in force:--
(b) in the case of goods cleared from a warehouse under section 104, on the date on which a bill of entry for clearance of such goods is presented under that section."
It was also argued that in the present case the Customs Authorities themselves allowed the filing of an accepted the ex-bond bill of entry and assessed the same at the rate as on the date the Ex- Bond Bills of Entry were submitted by appellants. The appellants were permitted to pay taxes assessed on the basis of shortages and discrepancies discovered during the stock-taking. In view of the clear legal provision the 'impugned order of the learned Collector for recovery of custom duty etc., as assessed at the time of in-bonding of goods is not lawful. The only relevant date for the assessm ent and payment of the custom duty etc., is the date of ex-bond bill of entry filed by the appellants and accepted by the Customs Authorities.
In support he relied on section 109 of the Customs Act, 1969 which reproduced below:-- "If any goods have been entered for warehousing and assessed under section 80 but the duty leviable thereon is subsequently altered, such goods shall be re-assessed on the basis of the altered duty and a new bond shall be executed by the owner in accordance with the provisions of section 86 to replace the bond originally executed by him."
(v) The learned Collector has imposed a heavy penalty ignoring the fact that the appellants were not responsible for the shortage and discrepancies allegedly discovered during the stock-taking and that they should not be made to suffer for no fault of them. Even otherwise the penalty is not lawful and very harsh.
6. The learned Departmental Representative opposed the above submissions of the learned counsel for the appellant and supported the Order-in-Original and further asserted that in the present circumstances of the case rate of duty should be as on the date the in-bond Bill of Entry was filed and that the penalty of Rs, 40,00,000/- was lawfully imposed and that all the contentions raised by the appellant were fully answered in the impugned order.
7. We have considered arguments of both the parties and examined the case record and the plea of the learned counsel for the appellant that the alleged contraventions were due to mis- management of the previous management, and also because of the connivance of the Customs and the appellant cannot be penalized for no fault of them.
8. This plea of the appellant apparently is relevant for consideration in so far as the imposition of penalty is concerned which is in the nature of criminal liability and so guilty intention or otherwise was to be proved against the person charged explicitly. There had neither been any enquiry as to when and by whom the goods were clandestinely removed or about the criminal negligence on the part of customs staff posted at the warehouse and their concerned high ups as the customs law equally enjoin duty of safe custody of the goods in the warehouse on customs officials posted for the job. Under section 13 of the Customs Act, 1969 private warehouse is maintained under double lock of the licensee and the Customs House and it is the duty of the customs to make periodical verification of stock by a responsible sub-ordinate. The Assistant Collector is also duty bound to check stock by surprise. In addition there are a number of instructions on the subject from time to time in respect of the working of the warehouse and security of goods by the CBR which were never adhered to in the present case. Thus besides the appellant customs cannot escape its responsibilities to see that the goods are not removed unlawfully and without the payment of duty and taxes.
9. There is a established law that the provision of penalty are in criminal nature and for that mens rea or intention of the party is relevant. Reference is made to case law reported as 1996 PLD Kar. 68, PTCL 1988 CL. 172, 1989 PLD Lahore 121, 1993 CLC 1975 and PTCL 1998 CL. 125.
10.There is not an iota of evidence against the appellants that the goods in question were removed by them with the guilty intention and as against it is proved on record that all happened due to mis-management by the previous Management of the Company and undoubtly appellants as soon as came to know of it they cooperated with the customs in stock taking and paid immediately the customs duty and taxes by ex-bonding the goods.
11.We find no hesitation in observing that the customs staff and officers concerning the warehouse were equally responsible for safe custody of the goods clandestinely removed. So we hold that heavy penalty in no case is justifiable.
12.In so far as the liability of the appellant to pay the duty and taxes as prevalent either on the date of In-Bond Bill of Entry or ex-bond Bill of Entry were filed, we would like to discuss the relevant law hereafter.
13. Chapter XI of the Customs Act, 1969 relate to the warehousing of the goods and its assessm ent before depositing the goods in the warehouse. Sections 84 and 85 provides form of application for warehousing the goods and sections 86 to 91 provides for warehousing bonds and other procedure including excess of customs officer to private warehouses. Section 97 relate to the taking goods out of warehouse according to law. Section 98 provides the period of warehousing the goods extendable by the Collector and board or the government. Section 104 provides for clearance of bonded goods for home consumption whereas the section 105 for export. Section 107 relate to clearance of goods from the warehouse for home consumption or for export. Section 108 provides for re-assessm ent of warehoused goods when damaged or deteriorated whereas section 109 provides for re-assessm ent of duty of in-bonded goods on the date any change in rate of duty is enforced. Section 110 relate to volatile goods and in case of deficiency in quantity due to natural loss no duty is charged on the deficiency. Section 111 is important for the purpose of this case as it provides that appropriate officer may demand and upon such demand the owner of such goods shall forthwith pay the full amount of duty chargeable on such goods together with all rent penalties, surcharge and other charges payable in respect of them, namely:-- (a)Warehoused goods which are removed in contravention of section 97.
(b)Goods which have not been removed from the warehouse within the time allowed for such removal under section 98.
Section 112 provide the procedure for the recovery of the duty and demand.
14.The customs failed to comply the above mandatory provisions of Chapter XI more particularly of sections 109 and 111, which sections provide actions on the part of customs in the situation envisaged in these sections e.g. when the goods are not removed within the admissible period and on alteration in duty reassessm ent. They had been sleeping over the matter which not only show their negligence but connivance.
15.In whole of the Chapter XI however there is no specific provision for the charging of duty on clandestinely removed goods either on the date of their detection or on the date of filing of in- bond Bill of Entry. So much so even the relevant section 111 which relate to "Duty on goods improperly removed" from the warehouse is silent. The only guide line provided are in the case reported as PTCL 1990 CL. 217 according to which the current rate of duty i.e. the date on which Ex- bond bill of entry is to be reckoned for the purpose of payment of duty and taxes. It is also held in case reported as PTCL 1989 CL. 60 that provision of sub-sections (2) and (3) of section 32 of the Customs Act, 1969 are applicable to charge duty leviable under section 111 (duty on improperly removed goods) read with section 98. In view of no clear cut finding as to on which date goods were removed, who removed and where the goods had gone (certainly in this case these were for consumption in the factory) the date for determining of the duty in the present case shall be the date on which the Ex-Bond Bills of Entry were filed and the rate of duty shall be the rate applicable on that date. This view is appreciated even by very scheme of warehousing the goods which scheme is for facilitating the manufacturer and the importer besides meeting the axiom that a tax as far as possible ought to be levied at the time and in the manner most convenient for its payment as it obviate forced sale of imported goods, brake down monopolies and augment production and the trade of the country.
16. It is also observed that purpose of bond from the Importer under the Act binding in penalty of twice the amount of duty assessed under sections 80 and 81 or re-assessed under section 109 on goods is concerned it is not spirit of the Act to impose in all circumstances the penalty as double the assessed duty but to secure the payment of the duty and penalties in case of violation and cover the increase in customs duty on warehoused goods.
17. For the above stated reasons, we hold that:-- (a)the appellant is liable to pay duty and taxes as in force on the dates Ex-Bond bills of entry were filed by him and
(b) order the remittance of penalty from Rs, 4.000,000.00 to Rs, 500,000.00 (rupees five hundred thousand only).