JUDGMENT: MR. MOHAMMAD SULAIMAN, MEMBER (TECHNICAL).--(l). This appeal has been filed against the Order-in-Original No. 50-Cus/2001 dated 12.05.2001 passed by the Collector of Customs, Central Excise & Sales Tax (Adjudication), Lahore.
2. Brief facts of the case as reported by the Staff of Directorate of Intelligence & Investigation (Customs & Excise), Lahore are that M/s. Zaman Energy Company Ltd., 26-K.M., Lahore. Sheikhupura Road, Sheikhupura imported three power generating sets free of custom duty and taxes vide SRO 279(I)/94 dated 02.04.1994 and SRO 569(I)/95 dated 26.06.1995, for setting up Power Generating Project vide Bills of Entry No. 5352 dated 08.04.1996, 7231, 7232, 7233, 7234 and 7235 all dated 22.06.1996. An information further revealed that the said company actually installed two generating sets at their project site and managed to obtain installation certificate for all three generating sets from Assistant Collector, Central Excise Sheikhupura Division. During investigation the relevant records of import/installation certificate were obtained from Customs NLC/CFS and Assistant Collector, Central Excise & Sales Tax, Sheikhupura Division, while the company failed to supply the requisite record and also failed to justify its position.
3. The scrutiny of the record obtained from Collector of Customs, Central Excise, revealed that M/s. Zaman Energy Company Ltd., imported three sets of 5.650 KW "Diesel Generators" and related auxiliaries valuing Rs. 34,74,36,778.00 vide Bills of Entry No. 5352 dated 08.04.1996, 7231, 7232, 7233, 7234 and 7235 all dated 22.06.1996, filed through Customs Clearing Agent M/s. Flying Group of Industries, 55-Bridge Colony, Lahore Cantt at CFS/NLC, Multan Road, claiming exemption from Custom duty and taxes vide SRO 279(I)/94, dated 02.04.1994 and SRO 569(I)/95, dated 26.06.1995.
The Collectorate of Customs, Lahore refused to extend the benefit of these SROs, as the importers did not fulfill the condition provided therein, requiring them to enter into an implementation agreement with the Government of Pakistan. The importers filed a Writ Petition No. 5907/96 in the Lahore High Court challenging the Collectorate views, pleading that the condition was not part of aforesaid SROs at the time of opening of L.C for import of machinery in question. The Honourable High Court passed interim orders for provisional release of goods under the aforesaid SROs on furnishing indemnity bonds to the satisfaction of the Collector of Customs pending final decision.
The Collectorate of Customs, had made a reference to Central Board of Revenue, with a recommendation to extend benefit of exemption from sales tax vide SRO 569(I)/95, dated 26.06.1995 and partial exemption from custom duty under SRO 585(I)/95. Dated 01.07.1995. The detecting agency has reported that dispute about the applicability or otherwise of the said SROs have not been resolved yet.
4. The investigation of the case has revealed that the importers have violated the main condition stipulated in SRO 279(I)/94, dated 02.04.1994 and SRO 569(I)/95, dated 26.06.1995 by not installing all the three generating sets at their project which renders them ineligible for the benefits under the said SROs. They managed to fraudulently obtain Installation Certificate No. 136 dated 05.05.1998, issued by the Assistant Collector, Central Excise Sheikhupura Division in respect of all the goods imported against the aforementioned six bills of entry, whereas actually two generating sets were installed at their project i.e. M/s. Zaman Energy Company Ltd., 26-K.M., Lahore-Sheikhupura Road, Sheikhupura. The third "Generating Set" was installed in the factory premises of M/s. Zaman Paper and Board Mills (Pvt.) Ltd., 10-K.M., Sheikhupura-Faisalabad Road, Sheikhupura. This fact has been admitted by the party in their application dated 07.07.1998 found in the case file of the Assistant Collector, Central Excise Sheikhupura Division, wherein they had requested for issuance of a separate installation certificate in his respect. The importers also issued a reminder on 27.10.2000 for early issuance of installation certificate.
5. The inquiry into the matter, revealed that the application for issuance of installation certificate dated 07.07.1998 was never submitted in the office of the Assistant Collector, Central Excise Sheikhupura Division as the same does not bear any diary number or signature of any receiving official. There is no entry showing receipt of this application in the diary register on 07.07.1998, whereas the importer had earlier submitted six applications on 08.11.1997, for issuance of installation certificates regarding all goods imported vide above mentioned six bills of entry, declaring therein installation of all machinery, equipments etc. At the project site of M/s. Zaman Energy Company Ltd., 26-K.M. Lahore- Sheikhupura Road Sheikhupura. Hence, it is obvious that the importers managed to obtain a bogus installation certificate first for all three generating sets against the actual installation of two generating sets, and maneuvered to place an application in the relevant file in the office of the Assistant Collector, Central Excise Sheikhupura Division for issuance of a separate installation certificate for the third generating set which was not installed at the project site. This is further supported by the fact that the Installation Certificate No. 136, dated 05.05.1998, relating to all three generating sets, was duly submitted by the importers with the Collectorate of Customs, Lahore to fulfill the condition of relevant SROs and discharge of indemnity bonds furnished by them.
6. It was pointed out that besides other conditions provided therein, notifications numbers SRO 279(I)/94, dated 02.04.1994 and SRO 569(I)/95, dated 26.06.1995 extend benefit of exemptions from duty and taxes to the machinery equipments and construction materials including coal mining equipments from the payment of whole of customs duty and sales tax, if imported for setting up or for balancing modernization and extension of power generation i.e. Oil, gas, coal wind and wave energy projects, including under construction projects which entered into and implementation agreement with the Government of Pakistan subject to following condition:-
(i) The importer shall furnish an indemnity bond equivalent to the Customs duty/sales tax involved which shall be discharged on production of Installation Certificate from the concerned Assistant Collector of Customs & Central Excise within one year from the date of importation of plant or machinery. Such certificate would clearly state that machinery and equipment imported for the purposes specified in the bills of entry have been duly installed.
(ii) In the event of non production of such certificate by the importer the Collector of Custom" shall enforce the indemnity bond and proceed to recover government dues under relevant provisions of the Customs Act, 1969 and Sales Tax Act, 1990 and the rules made thereunder.
7. It was also pointed out that the required drawing for civil and construction work prepared by the supplier company was also for two 5.650 KW Diesel Generating Sets, which proves that the company actually imported two Diesel Generating Sets for their project but managed to declare and clear all three generating sets for their project at M/s. Zaman Energy Company Ltd. And claimed exemption under the above SROs. Their letter dated 07.07.1998 and reminder dated 27.10.2000, and installation certificate issued in this regard clearly indicate the fraud and strengthen the above facts or the case.
8. The exemption under these SROs is not admissible if the machinery, and equipment etc. Is utilized for any other purpose outside the project. By failing to install one generating set valuing Rs.
11,58,12,259.00 at the project site and claiming benefit of exemption from duty and taxes by fraudulently obtaining a bogus installation certificate and filing it with the Customs Authorities, M/s. Zaman Energy Company Ltd., 26-K.M. Lahore-Sheikhupura Road, Sheikhupura have evaded custom duty and taxes amounting to Rs. 10,00,84, 954.00 leviable on one generating set.
9. M/s. Zaman Energy Company Ltd., 26-K.M. Lahore Sheikhupura Road, Sheikhupura, M/s. Zaman Paper and Board Mills (Pvt.) Ltd.', 10-K.M. Sheikhupura-Faisalabad Road, Sheikhupura and Customs Clearing Agent M/s. Flying Group of Industries, 55-Bridge Colony, Lahore Cantt., deprived the Government from its legitimate revenue amounting to Rs. 10,0, 84,954.00 on account of customs duty Rs. 5,21,15,517.00 Regulatory duty Rs. 1,15,81,226.00 and sales tax Rs. 2,69,26,350.0 F.R.F. Rs.
11,58,122,00 and Income Tax Rs. 83,03,739.00. Thus, they violated the provisions of the aforesaid SROs read with sections 19 & 32 of the Customs Act, 1969, read with sections 3, 6 & 13 of the Sales Tax Act, 1990, punishable under section 156(1) 10-A, 14 & 90 of the Customs Act, 1990 read with sections 33, 34 & 36 of the Sales Tax Act, 1990.
10. M/s. Zaman Energy Company Ltd., 26-K.M. Lahore- Sheikhupura Road, Sheikhupura, M/s. Zaman Paper and Board Mills (Pvt.) Ltd., 10-K.M. Sheikhupura-Faisalabad Road, Sheikhupura and Customs Clearing Agent M/s. Flying Group of Industries, 55-Bridge Cplony, Lahore Cantt, were called upon to show cause within 10 days from the date of the Order-in-Original, why the evaded amount of Rs.
10,00,84,954.00 may not be recovered from them and they may not be penalized under the above provisions of law.
11. Consequently, after proper opportunity of hearings to both the parties the adjudicating officer after detailed deliberation observed as under: --
(i) A perusal of SRO 279(I)/94, dated 02.04.1994 reveals that the exemption of customs duty was extendable to machinery, equipment and construction materials, including coal mining equipment imported for setting up or for balancing, modernization and extension of power generation i.e. Oil, gas, coal wind and wave energy projects including under construction projects (which entered into an implementation agreement with the government of Pakistan) subject to the conditions given in the SRO. The concession was extendable only to energy projects. The appellants imported three generators for M/s. Zaman Energy Company Ltd., Sheikhupura which is an energy project as required under the SRO. However, only two generators were installed at the energy project whereas installation certificate was acquired for all the three generators. It was later confirmed that one generator had been installed at the factory premises of M/s. Zaman Paper & Board Mills Ltd. In violation of SRO 279(I)/94, dated 02.04.1994. In this regard reliance is placed upon various references as quoted in the judgment, M/s. Army Welfare Sugar Mills Ltd. Vs. Federation of Pakistan, 1992 SCM R 1652. Likewise the various interpretations were quoted in support of the respondents.
(ii) The mala fide of the appellants is also proved from the fact that drawing for civil and construction work prepared by the supplier company requires only two 5650 KW diesel generating sets & not three. In this way duty was evaded on the third generator.
(iii) The fact that the appellants got installation certificate for three generating sets proves their mala fide.
(iv) As regards the applicability of SRO 279(I)/94, dated 02.04.1994, SRO 569(I)/95, dated 26.06.1995 and SRO 585(I)/95, dated 01.07.1995 with respect to requirement of implementation agreement with the government of Pakistan, the seizing agency has commented reported In the para-2 of the contravention report as under:- "Scrutiny of the relevant Customs and Central Excise record reveals that M/s. Zaman Energy Company Ltd., imported three sets of 5650 KW diesel generators. The Collectorate of Customs, Lahore Refused to extend the benefit of these SROs on the ground that the importers did not fulfill the condition provided therein whereby they were required to enter into an implementation agreement with the Government of Pakistan. The importers challenged the Collectorate's action by filing Writ Petition in the Lahore High Court, Lahore pleading that the condition was not part of aforesaid SROs at the time they opened letters of credit for the import of machinery in-question.
The Honourable High Court in Writ Petition No. 5907 of 1996 passed interim orders for provisional release of goods of the Collector of Customs, Lahore pending final decision. Accordingly all the consignments were released on production of indemnity bonds duly executed by the importer. The Collectorate of Customs, Lahore has made a reference to the Central Board of Revenue vide its C.
No. 65-1. BOND/1/86-87/3120/3411, dated 12.05.2000 with a recommendation to extend the benefit of exemption from Sales Tax under SRO 569(I)/95, dated 26.06.1995 and partial exemption from customs duty under SRO 585(I)/95, dated 01.07.1995. The dispute about the applicability or otherwise of the said SROs has not been resolved yet." Since Collectorate of Customs,r- ahore's reference is lying pending with the Central Board of Revenue as to extension of benefit of exemption from sales tax under SRO 569(I)/95, dated 26.06.1995 and partial exemption from customs duty under SRO 585(I)/95, dated 01.07.1995 a final decision as to extension of benefit of above SROs may be given once the CBR gives its verdict.
12. In the light of the aforesaid the appellants were ordered to pay duties & taxes amounting to Rs.
100,084,954.00 leviable on one generating set in contravention of the provisions of SRO 279(I)/94, dated 02.04.1994 and SRO 569(I)/95, dated 26.06.1995 read with sections 19 & 32 of the Customs Act, 1969, punishable under clauses 10-A, 14 & 90 of section 156(1) of the Customs Act, 1969. They were also ordered to pay additional sales tax in terms of section 34 of the Sales Tax Act, 1990. A penalty of Rs. 10,008,495.40 (being 10% of the evaded amount of duty & taxes) was also imposed upon the appellants.
13. Being aggrieved by the decision of the Collector of Customs, Central Excise & Sales Tax (Adjudication), Lahore, the appellants preferred an appeal before the Appellate Tribunal, Customs, Central Excise & Sales Tax, Lahore where the leamed Member (Technical) expressed his inability to hear this case, therefore, the leamed Chairman transferred this case to Islamabad Bench. This case has been fixed on 19.05.2003 and the counsel for the appellants pointed out as under:--
(i) The appellants imported three power generating sets in terms of SRO 279(I)/94 which were released on the basis of order of Honourable Lahore High Court. The machinery was duly installed.
Installation certificate was requested and obtained and duly submitted to Customs Authorities as required under the said SRO. The requirements of the relevant SRO were therefore fully met.
(ii) In early 90's Pakistan was facing severe shortage of electricity. The government therefore embarked upon a massive and systemic campaign for investment in the energy sector. The appellants invested a huge amount of more than Rs. 500 million for the said project. By installing the project, the appellants contributed towards government efforts for higher electricity production. The three power generating sets were imported for power generation and are being used for power generation only. Benefit of SROs therefore should not be denied on flimsy and technical grounds keeping in view (1) the huge investment and (2) boosting of country's energy resources.
(iii) There is no denying the fact that two generating sets were installed at Unit No. 1 i.e. 26-K.M.
Lahore- Sheikhupura Road whereas the third one was installed at Unit No. 2 i.e. 10-K.M. Sheikhupura- Faisalabad Road where the premises were leased from a sister concern M/s. Zaman Paper Mills for installation of power generation plant.
There is no restriction whatsoever in SRO 279(I)/94 for installation of the energy project at particular site. In fact the SRO does not require that the exact project site be declared beforehand. The notification requires only the address of the registered office of the importer. The installation certification is subsequent to the actual installation of the machinery and is issued by the Assistant Collector in whose jurisdiction the project is located. The said certificate was duly produced by us indicating that the plant and machinery had duly been installed in his jurisdiction.
The project could have been installed at any premises in Lahore, Faisalabad, Sheikhupura or any other city of the country. The benefit would remain available so long as the power generation sets were installed and used for the purpose for which these were imported i.e. For setting up or BMR of power generation. The power generating machinery installed at 10-Sheikhupura-Faislabad Road is owned & operated by the appellants.
In the Order-in-Original, Collector has tried to rely upon few judgments of the superior courts regarding availability of benefit of exemption to be made available only if one is strictly covered by the statute granting the exemption. The judgments are not relevant in our cases as we are fairly and squarely covered by the language of the notification as explained in the preceding paragraphs.
It is therefore, clear from the foregoing, that the whole case is a figment of imagination of the prosecution. The objections are baseless, flimsy, arbitrary and aimed at harassing the genuine investors.
In view of the fore-going, it is prayed that Order-in- Original, being illegal and void abinitio may be set aside.
14. The Departmental Representative on the other hand opposed the contentions of the appellants and defended the impugned order. In view of the above he contended that the appeal was liable to be dismissed.
15. We have heard both the parties and studied the record with care and caution. In this case the only point on which judgment is based relates to the fact that the 3rd generating set was installed at a location different from the one for which the goods were allegedly imported. In this regard reference to another case is relevant. That case related to M/s. Lucky Energy Ltd., Karachi. In that case the generating sets were installed at locations other than that of M/s. Lucky Energy Ltd., Karachi, itself. A show cause notice' was issued to the party in that case and the importers were asked to pay the duties and taxes involved in that case and personal penalties were also imposed by Collector of Customs (Appraisement), Custom House, Karachi. Being aggrieved of that order the importers filed an appeal before that Customs, Excise and Sales Tax Appellate Tribunal, Karachi Bench. After having heard arguments of the appellants in that case the Appellate Tribunal vide its judgment C. No. Cus. App./RA No. 1951/99/438, dated 04.02.2000 set aside the order of the Collector of Customs (Appraisement) and ordered the Collector to decide the'tase afresh in the light of Board's letter C. No. l/7/Mach/97-A, dated 07.01.1997. The relevant portion relating to this industry reads as under:- "2(iii) As per notification installation in specific unit or area has not been specified. Therefore, the importers can locate their power plant in any of their project as no approval from CBR was required in terms of SRO 279(I)/94." The Collector of Customs (Appraisement) in his Order-in-Original No. 53/2000, dated 15.05.2000 ordered that "in view of sub-para 2(iii) of Board's clarification i.e. Letter C.
No. l/7/Mach/97-A, dated 07.01.1997, the importers can avail the benefit of SRO by locating their power plant in any of their project. In the light of Honourable Appellate Tribunal's direction and Board's aforesaid clarifications, the show cause notice is vacated". This order was issued on 15.05.2000 whereas the impugned order was issued on 12.05.2001. In view of the above and the fact that the disputed point in both the cases was identical i.e. The location of the plant in a unit other than the location mentioned on the Bill of Entry. The location of the plant in any specific unit or area was not required under SRO 279(I)/94, dated 02.04.1994 etc. As also clarified by the CBR. The impugned order is therefore set aside and the appeal accepted.
16. Ordered accordingly.