ZAFAR IQBAL, MEMBER (TECHNICAL)-(1). This appeal has been filed against the order dated 21-12- 1000 passed by the Collector of Customs (Adjudication), Quetta.
2. The brief facts of the case are that the appellant M/s. Fateh Industries Ltd., Hyderabad (hereinafter referred to as the appellant) did re-import a consignment of "Men's Shoes Leather upper with Rubber Sole having a value of Rs. 1.5137 million. These goods had been exported in 1996 vide shipping bill No. St-151 dated August 5, 1996.
3. The foreign buyer of these goods refused to pick up the delivery as he detected some defects in the exported goods and asked the sender to remove the defects pointed out. The goods exported vide the Said shipping bill thus came back.
4. The appellant did file an into-bond bill of entry on October 20, 1996 seeking clearance of goods without payment of duty in terms of sub-section (e) of section 22 of the Customs Act, 1969 (hereinafter referred to as the Act) read with notification No. 69(I)/70. For that purpose the competent officer examined the goods and found the consignment conforming to the requirements of the said provisions of law. The competent officer, accordingly, allowed release of goods without payment of duty as being permissible within the framework of law. The goods remained in the warehouse for two days and thereafter were again exported as the defects stood removed.
5. More than six months after, the revenue receipt during an audit inspection, pointed out the legality of the release of the said goods without the payment of the due duty. ,It was the opinion of the audit team that the governing provisions of section 22 required payment of taxes on the returned goods as the provisions of sub-section (b) of section 22 of the Act, prescribed that customs duty not paid on the import of raw materials, used in the production of end product meant for export, was payable in the event of their return back to Pakistan.
6. In consequence thereof the department issued a show cause notice to the present appellant, thereby asking him to show cause that as to why he did avail an incorrect exemption. It was further alleged that the said act of the appellant did cause a loss of revenue amounting to Rs. 0.33 million in respect of duties and taxes.
7. The appellant denied the charges levelled against him in the said show cause notice. The appellant stated that:
(i) that as evident from the records, this consignment was manufactured in bond, and was first exported from Dry Port, Hyderabad, vide shipping bill No. 151 dated 05-08-1996, but unfortunately it was returned by the foreign buyer due to the nonfulfillment of some requirements, hence the defendant/importer at the time of its import, filed an in-bond bill of entry No. 140 dated 20-10-1996 clearly indicating section 22 (c) of the Customs Act, 1969, thereon, and the consignment was properly/thoroughly examined at Dry Port, Hyderabad, in terms of said section 22 and thus it was allowed for entry in the "Manufacturing Bond" under the proper orders of the then Deputy Collector of Customs, Dry Port, Hyderabad;
(ii) that as far as the application of section 32 of the Customs Act, 1969 is concerned, it is worth mentioning that this section prescribes a time limit and manner for the recovery of the escaped duty and taxes on account of the untrue statement of the person concerned, whereas no such untrue statement is involved in this case;
(iii) that the customs authorities at Dry Port, Hyderabad, had allowed the in-bonding of the goods manufactured in bond just to facilitate and promote the export of Pakistani goods and also to earn foreign exchange for Pakistan, otherwise they would have detained the goods and demanded the duty and taxes involved in the case.
8. The matter came up for adjudication before the Deputy Collector of Customs (Exports)
Hyderabad who decided that demand of tax against the appellant was barred by time in terms as sub-section (3) of section 32 of the Act (a six months time stood prescribed for making recovery of an escaped assessm ent), he accordingly vacated the demand-ca/n-show cause notice.
9. The Collector of Customs (Exports), Karachi, re-opened the said order of his subordinate in exercise of his revisional jurisdiction as vested in him vide section 195 of the Act. Later on, in terms of the decision appealed against, the demand raised against the appellant was enforced. The said order has been challenged through this appeal.
10. The question involved in the appeal before us is whether the appellants are liable to pay customs duty and taxes on the goods earlier exported by them and returned by the foreign buyer on account of some defects. The learned Deputy Collector, who initially adjudicated the matter, came to the conclusion that no customs duty or taxes were chargeable on such goods as the limitation had intervened in view of the provisions of section 32(3) of the Act. However, the learned Collector of Customs (Exports), Karachi, did not agree with his findings and re-opened the case under section 195 of the Act and, later on, decided that as the matter fell within the ambit of section 22(b) thereof, the demand of payment of tax from the taxpayer was lawful. He, accordingly, directed the taxpayer to make the payment good.
11. The case of the appellant is that the order passed by the adjudication officer is ab-initio wrong in as much as that the appellant did file an in-bond bill of entry for release of consignment under question. Their request for release of goods into a bonded warehouse was accepted by the competent authority by extending the benefit of SRO 69(I)/70 dated 17-04-1970 and as provided vide section 79 of the Customs Act, 1969 as such their goods were allowed release without payment of duty by a competent authority, authorized to do so. Hence there was no case for a demand of duty or taxes under section 22 of the Act.
12. A perusal of the bill of entry submitted for release of the said goods reveals the facts leading to processing and final disposal of the case. Relevant entries of interest are recorded as under: "....On the front page, the appellant, after declaring the description and other relevant facts about the goods, made a request for the release of goods in terms of section 22(c) of the Customs Act, 1969 or under SRO 69(I)/70...."
13. On the reverse side of the bill of entry the entries are: "....The subject goods were exported against shipping bill No. 151 dated 05-08-1996. The goods received back as the buyer has refused to accept the consignment as per letter of M/s. Fateh Industries Ltd., Hyderabad placed opposite.
The goods were examined by the Examining Officer and found sealed intact on the container. The goods examined 5% and found as per exported vide shipping bill No. 151, dated 05-08-1996.
(i) As per section 22 of the Customs Act, 1969, the goods have been received within one year period as the same was exported on 06-08-1996.
(ii) No rebate has been sanctioned as confirmed by Incharge Rebate Section. His report written on the note sheet of file. If approved the bill of entry may be processed and completed accordingly."
Sd/- (Appraising Officer)
Dry Port Sd/- (Principal Appraiser)
Dry Port Sd/- (Deputy Collector)
Dry Port
14. It appears from the record that the goods in this case were accordingly admitted duty free and their entry was allowed into- bond for removing the defects and for re-export of the said goods.
The fact further gains strength as the goods were reexported within two days of its entry into the warehouse.
15. In our opinion the following issues are important for deciding this case:
(i) whether or not the demand raised against the appellant was time-barred?
(ii) whether or hot the release of goods into bond in terms of SRO 69(I)/70 was correct?
16. It would be appropriate to recall the facts earlier stated. Pursuant to an objection by the revenue receipt audit that a taxpayer did escape payment of his tax liability conforming to the provisions of section 22 of the Act, a demand was raised. A demand of tax, whether in consequence of section 18 or section 22, has to conform to the requirements of section 32 of the Act. Where the provisions of the Act prescribe a time limit, that has to be adhered to. In this case the conclusion arrived at by the adjudication officer was that the demand raised stands hit by the prescribed time limit. This finding was perfectly in order. In no way the said order can be termed as illegal or improper. Even if it is assumed that there existed a violation of section 22, its legality and justness was to be determined within the framework of section 32 of the Act.
17. The belief of the Collector that the case has been decided with reference to section 32(2) whereas demand was to be raised for violation of section 22(b) of the Act, perhaps is based on the assumption that a liability arisen within the framework of section 22(b) is immune from time limit prescribed under section 32 of the Act. That assumption does not appear to be based on a sound legal reasoning. Where a liability did arise, the issuance of a demand-cum-show cause notice became necessary and that too within the prescribed time limits for such occasions. For escaped assessm ents due to inadvertence, error or misconstruction section 32(3) of the Act provides the necessary time limits. The demand of taxes, if any, has to be raised within the prescribed time limits thereof. Hence the decision and conclusion arrived at by the Deputy Collector of Customs, Hyderabad, was based on a perfect legal reasoning.
18. In this regard attention is invited to an illuminating Judgment of the Supreme Court in the case of Federation of Pakistan vs. Ibrahim Textile Mills Ltd., reported as PTCL 1993 CL. 532 = 1992 SCMR 1998. Their lordships while interpreting the provisions of the Act, regarding tax recovery matters observed: ".... But the cardinal principle of law is that all are equal before law, whether citizen or State.
Secondly if. a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts. Thirdly, while construing a financial statute, its terms are strictly to be followed. Keeping in view these principles, for short-levied duties on account "of inadvertence, error or misconstruction", section 32(3) of the Customs Act, 1969 provides that for recovery notice shall be served 'within six months'. If that is not done, like a suit for recovery of money after lapse of time, prescribed by law of limitation, the recovery becomes unenforceable...."
19. Be that as it may, the demand in this case was hit by the limitation provided under section 32 of the Customs Act, 1969.
20. As regards the second issue, it would be appropriate to reproduce the governing provisions of SRO 69(I)/70, the same are as under: "....In exercise of the powers conferred by section 219 of the Customs Act, 1969 (IV of 1969), the Central Board of Revenue is pleased to make the following rules relating to the clearance of dutiable imported goods, without payment of duty, for the manufacture of goods meant wholly for export, namely:
1. The Collector of Customs may, on the application of an importer of dutiable goods, hereinafter referred to as raw materials, who intends to use the raw materials in the manufacture of goods which are wholly meant for export and makes a declaration to that effect, allow the importer to clear the raw materials, without payment of duty, under bond to a factory which is a private warehouse licensed under the Customs Act, 1969 (IV of 1969).
2. The raw materials cleared under rule 1 shall be used only in or for the manufacture of goods for export in bond under Customs supervision.
3. (1) The importer shall set apart in the factory one place for the storage of raw materials and another for the storage of the manufactured goods and both the places so set apart shall be under the lock and key of the appropriate officer posted at the factory.
(2) The raw materials and manufactured goods stored in the places set apart for the purpose under sub-rule (1) shall be segregated from each other and properly marked to tally with the register maintained under these rules.
4. (1) An importer who desires to clear any raw materials under rule 1 shall apply to the Collectorate of Central Excise and Land Customs under whose jurisdiction the manufacturing unit is located, with samples of the goods to be manufactured and obtain from the Collectorate. The certified analysis cards along with the samples showing the quantity of raw material required for the manufacture of a unit of the goods meant for export.
(2) The Collectorate shall retain one copy of the certified analysis card and one sample, certified by it, hand over one such copy and sample to the importer to be produced by him at the time of clearance of the raw materials from the warehouse and forward one such copy and sample each to--
(a) the Custom House for retention in the Export Section thereof for the purpose of comparison with the manufactured goods at the time of their export, and
(b) the officer in charge of the warehouse on the factory premises.
(3) The importer shall submit the certified analysis cards and samples obtained by him under sub- rule (2) to the Collector of Customs along with the full formula of the finished goods manufactured by him and the details of the raw materials and articles used therein...."
21. The said SRO has been framed in exercise of powers conferred on the Board vide section 215 of the Customs Act, 1969, whereby the Collector of Customs, under these rules is authorized to allow release of dutiable imported goods without payment of duty for the manufacture of goods wholly meant for export. In the present case the appellant did file an into-bond bill of entry in respect of disputed goods. He sought release of these goods without payment of duty within the framework of notification No. 69(I)/70. A reading of the above quoted provisions indicate that goods wholly meant for export were eligible for release into the manufacturing bond under the said rules. Even the noting on the into-bond bill of entry indicates that release of the said goods was authorized by a competent authority. The goods having been allowed release thereof, there was no occasion of raising a demand for payment of duty and taxes in terms of section 22 of the Act, as the said provision were not applicable in the instant case, due to the fact that the goods allowed release were meant for export. And it is an admitted fact that these goods were exported two days thereafter.
22. Now in order to assess that whether or not the goods allowed into bond were qualified for its entry into bond, it would be appropriate to recall the facts. A set of goods manufactured in a bonded warehouse were exported under a contract. As per terms of the contract the payment was tied up with delivery. As per contract pre-inspection at the arriving port was a precondition, in order to assess the fitness of goods. The goods were not found up to the mark and accordingly stood rejected. In other words delivery of goods did not take place as provided in section 24 of the Sale of Goods Act, 1930. As such the goods never changed hands as the defect was pointed out at the port of entry. Accordingly, the goods were shipped back to Pakistan in the name of the same consignee who exported them. The goods did arrive back within one year and the same were identified as per examination report to be the same goods as were exported. As per provisions of customs general order No. 48/73, the Deputy Collector to whom the case was put up for decision allowed entry of goods into bond without payment of duty as he was convinced about the bona fide of the arriving consignment stood verified. The goods were allowed export under bond as provided in SRO 69(I)/70. All such exports are since free, therefore, there was no occasion to charge the customs duty. In these circumstances, how the demand of duty in term of clause (b) of section 22 is justified as per the facts explained and the procedure spelled out. There was neither any procedural impropriety nor any illegality to call for an interference by the Collector to re-open the case.
23. Having said that, in our opinion--
(a) The demand of duty and taxes issued vide show pause notice No. 13 of 1999 dated 28-09-1999 was time barred, in terms of section 32(3), the same could only have been issued within six months.
Once the time having lapsed, there was. No occasion to raise a demand not warranted by law.
(b) In terms of SRO 69(I)/70 and in view of long outstanding departmental practice duly supported by customs general order No. 48 of 1973 and 18 of 1972, the release of goods into bond and its subsequent export thereof was perfectly in order and within the framework of long outstanding departmental practice.
24. Be that as it may, we are of the opinion that the order passed by the Collector of Customs (Adjudication) was not based on sound legal reasoning as it suffered from illegality in as much as that an attempt was being made to enforce a time barred demand. It also suffered from procedural impropriety as inspite of the long outstanding departmental practice to allow goods returned for removal of defects duty free in the light of CGO 48 of 1973, an attempt was being made to make a departure from the existing departmental practice. Accordingly we hold that the said order is illegal and uphold the order of the Deputy Collector Hyderabad dated 28-09-1999. The appeal is accordingly allowed.