2020 PLP 976 (PTD)

Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter absconder

17. Messrs Sikandar Jewellers (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (7 cases) Rs.193.00 million Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter absconder

18. Messrs SKS International F-753, Gali Tobian, Rang Mahal, Lahore (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (5 cases) Rs.75.563 million Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter absconder

19. Messrs United Gold H. No.43-A-1, St. No.49, Bank Street Islamabad Colony, Samanabad, Lahore (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (1 cases) Rs.2.235 million Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter absconder

20. Messrs Gold Mine 1-1080, Kucha Chabaksawar Near Mission High School, Rang Mahal, Lahore (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (52 cases) Rs.206.00 million Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter absconder

21. Messrs Everywhere (Pvt.) Ltd. (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (17 cases) Rs.68.730 million Pending action by SBP since 31-12-2015

22. Messrs Waqar Jewellers (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (2 cases) Rs.3.303 million Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter appearing

23. Messrs Tahir Jewellers (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (1 cases) Rs.0.410 million Pending action by SBP since 31-12-2015

24. Messrs Waheed Jewellers (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (28 cases) Rs.226.00 milion Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter appearing

25. Messrs Pakeeza Jewellers (Self Consignment Scheme) Non-realization of sale proceeds against export of gold/silver jewellery (3 cases) Rs.34.734 million Subjudice before FEAD (SBP) as informed by SBP vide email dated 17-7-2018 Exporter absconder e. Failure to export gold jewellery against imported gold (involvement of 3 importers - 58 cases and amount Rs.6.694 billion) (v) MCC (Preventive) Karachi The Directorate of Internal Audit (Customs) did not point out any irregularity for this Collectorate. The Collectorate conducted audit of cases involving import/export of gold/jewellery and framed 58 contravention cases involving an amount of Rs.6.694 billion against 3 importers who imported gold under Entrustment Scheme. Recovery proceedings against the defaulters were initiated in terms of Section 202 of Customs Act, 1969 and attachment proceedings were initiated, but no recovery till date has been made. Name of / Importer Exporter Nature of Contraven-tion Amount of tax liability/ penalty adjudged FIR No. and date Status of recovery proceedings Any others remarks

1. Messrs Saani Impex Ground Floor, Preedy Street, Saddar, Karachi (Entrustment Scheme) Gold imported but jewellery not exported (10 cases) Rs.1.350 billion 71/2017 31-10-2017 Recovery under section 202 initiated vide notice dated 7-9-2018 Stay granted by Sindh High Court vide order dated 22-11-2018.

2. Messrs Makkah Enterprises GC-4/8, Clifton, Karachi (Entrustment Scheme) Gold imported but jewellery not exported (25 cases) Rs.2.431 billion 72/2017 31-10-2017 Recovery under section 202 initiated vide notice dated 7-9-2018 No stay. Amount recoverable,

3. Messrs Rubab Corporation Plot No.33-6, Rahat Lane, No.2, Phase-VI, DHA, Karachi (Entrustment Scheme) Gold imported but jewellery not exported (23 cases) Rs.2.913 billion 73/2017 31-10-2017 Recovery under section 202 initiated vide notice dated 7-9-2018 Stay granted by Sindh High Court vide order dated 22-11-2018.

6. During hearing on 06.12.2018, record was produced by Collectors MCC Islamabad, Additional Collector (Preventive), Lahore, Collector MCC Peshawar, Collector PMBQ (Exports) Karachi and Collector (Preventive) Karachi. Mr. Moen Afzal, Secretary (Customs Policy) also attended the hearing. During hearing it was observed that detailed independent reports were required to be submitted by FBR, Collector MCC, Islamabad, Peshawar, Preventive-Lahore, Preventive-Karachi and PMBQ (Export), Karachi. As per request of the DRs hearing was adjourned to 13.12.2018. The DRs submitted their reports along with supporting documents relating to exports and imports under Entrustment Scheme as well as Self Consignment Scheme administered through SRO 266(I)/20001 and SRO 760(I)/2013 regarding irregularities which were detected through special audit by the Directorate General of Internal Audit.

7. The material available on the record and submissions made by the DRs on due consideration reflects that SRO 266(I)/2001 and SRO 760(I)/2013 were issued to regulate import and export of gold/gold jewellery, gemstones and other raw materials. Both the SROs provide mechanism for import as well as export. As pointed out hereinabove, under the SROs import and export were governed by two schemes i.e. Entrustment Scheme and Self Consignment Scheme. Under Para 5(2) of SRO 266(I)/2001, the exporter was required to supply gold jewellery of contracted quantity of gold content within one hundred and eighty days from the date of import of gold into Pakistan, in case of failure to export jewellery within one hundred and eighty days the exporter was to pay leviable duty and taxes on imported gold along with penalty @5% of leviable duty and taxes for first month and @ 10% of leviable duty for subsequent months.

8. Under Para 6(ii) of SRO 266(I)/2001, time frame was provided to exporter of gold jewellery and gemstone made on Self Consignment basis for bringing back gold and gemstones or export proceeds and any unsold gold jewellery and gemstones on import authorization issued by Trade Development Authority of Pakistan (TDAP) which was 120 days and Para 6(iv) of the SRO provided 240 days for realization of sale proceeds from the date of export failing penalty equal to 1% of sale proceeds per month was to be paid.

9. Similarly, Para 4(II)(ii) of SRO 760(I)/2013 requires that the exporter shall export eligible and authorized items within 120 days from the date of import of eligible and authorized items into Pakistan. Failure to export jewellery within the stipulated period shall be penalized under the relevant laws. Para 5 of SRO 760(I)/2013 provides following procedure for export of jewellery made from locally procured precious metal and gemstones: "(i) The registered exporter shall apply as per prescribed application form (Annex-H) to the Trade Development Authority of Pakistan for export authorization and such application shall be checked and verified by the TDAP and the entries shall be made in the jewellery Pass Book. (ii) Customs checking, random sampling etc. shall be same as in the entrustment scheme. (iii) The sale proceeds shall be realized within 120 days from the date of export. (iv) Minimum 50% of the export proceed shall be realized in the form of foreign exchange through normal banking channel. The remaining 50% of the export proceed may be realized either in the form of foreign exchange or in the form of precious metals, authorization of import of such precious metals shall be authenticated in the passbook by TDAP. (v) The unsold jewellery or gemstones shall be deposited with the customs authorities and shall be cleared against relevant entries in Jewellery Pass Book for import of unsold jewellery or gemstones against previous authorization; (vi) The Commercial Banks shall ensure that sale proceeds of jewellery and gemstones exported under this Order shall be repatriated in full within 120 days otherwise commercial banks shall inform State Bank of Pakistan as well as to TDAP.

10. Audit reports alleging illegality, irregularities and violation of SROs by MCC, Islamabad, Peshawar, Lahore and Karachi in transactions for import and export of gold, gold jewellery, gemstone and precious raw materials on due consideration reflect that the violations committed by each of the Collectorate are of different nature, therefore, the case of each Collectorate is to be examined separately. However, it is to observe that the Collectorate in their reply/reports did not dispute the observation made in audit reports. The same are rather admitted.

11. Following emerged on examination of audit paras and reports submitted by the Collectorates: (i) MCC, Islamabad 05 audit paras were raised regarding import of gold and violation of SRO 266(I)/2001 committed in export of jewellery. However, 04 audit paras were dropped / settled by Directorate General of Internal Audit, Islamabad. Remaining one audit para relate to duty free advance import of 30 consignments weighing 1327.361 kg gold valuing Rs.57.065 million at AFU, MCC Islamabad by Dubai Chain Centre during May 2013 to July 2013 and failure to export jewellery within 180 days from the date of import as required by Para 5(II) of the SRO 266(I)/2001. Messrs Dubai Chain Centre had exported gold jewellery weighing 1357.365 kg during February and March 2014 which was after period prescribed under Para 5(II) of SRO 266(I)/2001 creating demand of Rs.332.830 million but the Department has taken no action for recovery of due amount rather M/s. Dubai Chain Centre is being defended on the ground that Director Internal Audit has been directed by the Director General Internal Audit to refer the matter to Ministry of Commerce for endorsement of condonation granted by TDAP which is the regulatory body. Delay in finalizing the case as per law tantamount to maladministration as defined in the FTO Ordinance. (ii) MCC Lahore Audit objections regarding non-repatriation of foreign exchange in more than 300 cases of 25 importers of Lahore, were raised. The Collectorate, however, took the plea that action for non-repatriation of foreign exchange falls within the domain of State Bank of Pakistan (SBP) and referred the cases to the SBP for necessary action as per the Foreign Exchange Act, 1947 and rules made there under. The Deptt informed that the SBP has lodged complaints regarding the non-repatriation of Foreign Exchange in these cases with Foreign Exchange Adjudication Court. The Ministry of Law and Justice had also upheld the stance of MCC (Preventive), Lahore vide U.O. NO. 115/2018- Law-1 dated 09.04.2018 that the cognizance for non-receipt of remittances in cases where jewellery was exported against Form-E was to be taken by the SBP. The SBP vide its letter dated 05.04.2019, informed that total amount involved in cases of twenty-five gold exporters of MCC Lahore was approximately equivalent to USD 272.41 million. Out of this amount, USD 128.57 million had already been repatriated in the form of foreign exchange of USD 93.16 million and Gold of USD 35.41 million. In cases of three exporters involving amount of USD 0.99 million, one case has been closed by the Adjudicating Officer due to death of the exporter and by imposing monetary penalty of Rs.6.39 million on other two exporters. At present, cases of eighteen exporters having outstanding amount of approximately USD 142.85 million are under adjudication before Adjudicating Officers, which is a competent forum to decide such cases under the provisions of Foreign Exchange Regulations Act, 1947. Amongst eighteen exporters, four exporters having outstanding overdue amount of USD 12.97 million are not attending proceedings before Adjudicating Officer. However, Adjudicating Officer is trying to locate the exporters thorough NADRA and PTA to give them every possible chance to be heard and for realization of export proceeds. After exhausting options to locate the exporters, the Adjudicating Officer will decide cases according to the Adjudication Proceedings and Appeal Rules, 1988. Failure to repatriate foreign exchange by the exporters was not only the violation of Foreign Exchange Act, 1947 and the rules made there under but also the violation of SRO 266(I)/2001 and SRO 766(I)/2013 read with Import and Export Act, 1950 yet the Deptt instead of taking cognizance preferred to look other way. Allowing unhindered subsequent exports when it was evident that foreign exchange in respect of earlier export had not been repatriated within specified period, reflects negligence, inattention and ineptitude in discharge of duties and responsibilities which is tantamount to maladministration. (iii) MCC Peshawar: Audit paras were raised in 23 cases relating to MCC Peshawar, out of which 10 cases of the same nature i.e. duty/tax free advance import of gold was made under Entrustment Scheme against which jewellery was not exported, whereas 13 cases relate to Self Consignment Scheme. 09 cases after adjudication are pending with Customs Appellate Tribunal, 08 cases are under adjudication. In 05 cases ONOs are being implemented and proceedings for recovery of adjudged amount have been initiated. One of the case has been referred to Directorate of Internal Audit for settlement of audit para as against advance import of gold jewellery was exported from AFU BBI Airport Islamabad wherefrom GD No.RAFU-HC-12324 dated 22.01.2011 and shipping bills RAF-FB-2515 dated 26.07.2011 was confirmed vide letter C.No.SUIMPO/MISc/50/20101761 dated 31.08.2015. During hearing, the Collector Customs Peshawar was confronted with the issues relating to delay in initiation of action, non-registration of FIRs and delay in adjudication proceedings. Although he could not explain delayed initiation of action and non-registration of FIR, however, he assured that adjudication will be expedited and similarly proceedings for recovery of adjudged amount would be followed and efforts would be made for early disposal of appeals pending before the Customs Appellate Tribunal. It is observed that at the time of import of gold the concerned officer/official of the Deptt acted negligently and did not pay attention to the entries made in Jewellery Pass Book being maintained under Para 2(v) of SRO 266(I)/2011. Negligence, inattention and ineptitude in discharge of duties performance is evident. iv. MCC Preventive, Karachi Audit paras were raised relating to 58 cases, of import of gold under Entrustment Scheme relating to 03 importers and their failure to export jewellery. On the basis of audit paras contravention was created and after adjudication recovery of Rs.1.250 billion was created against M/s. Saani Impex, Rs.2.431 billion was created against M/s. Makkah Enterprises and Rs.2.913 billion was created against M/s. Rubab Corporation. Recovery proceedings were also initiated by the Department and FIRs have been lodged. After investigation challans have been submitted in the Court of Special Judge Customs, however, 02 of the importers namely M/s. Saani Impex and M/s. Rubab Corporation have filed appeals against the ONOs before the Customs Appellate Tribunal and simultaneously the Hon'ble High Court of Sindh was approached by the filing of CP wherein vide Order dated 22-11-2018 the Department has been restrained from initiation of coercive measures for recovery for two months whereas in one case i.e. M/s. Makkah Enterprises, importer is not traceable. Although the DR assured that the matter will be pursued in accordance with law for disposal of appeals and recovery of adjudged amount. However, no explanation was advanced for allowing repeated imports without ascertaining the fact about export of Jewellery against earlier import of gold which fact was ignored despite having evidence of imports entered in the Jewellery Pass Book to be maintained under Para 2(5) of the 266(I)/2001 and defined under Para 2(j) of SRO 760(I)/2013. Therefore, the concerned officers of the Deptt at the time of import are found to have failed to discharge their duties and responsibilities and acted in a negligent manner which constitutes maladministration. (v) MCC, PMBQ, Karachi Audit detected fake Form-Es involving revenue of Rs.3.178 billion submitted by M/s. Makkah Enterprises whereupon the Department initiated inquiry and detected fake Form-Es submitted by M/s. B. D. Enterprises involving revenue of Rs.8.209 billion, M/s. Rubab Corporation involving revenue of Rs.2.971 billion, M/s. Reaz Corporation involving revenue of Rs.6.527 billion and M/s. Saani Impex involving revenue of Rs.2.771 billion. After due adjudication, the Department issued ONOs creating liability of revenue against fake Form-Es. Although the Department had initiated recovery proceedings but four importers namely M/s. B.D. Enterprises, M/s. Rubab Corporation, M/s. Reaz Corporation and M/s. Saani Impex had filed appeals before the Customs Appellate Tribunal against the ONOs. Simultaneously, the Hon'ble High Court was also approached by filing of CPs. The Hon'ble High Court restrained the Deptt from adopting coercive measures till disposal of appeals by the Tribunal for which period of two months had been granted w.e.f. 22.11.2018.

12. It is to observe that repeated exports were made by all the five exporters. Admittedly, foreign exchange was not repatriated against Forms-E which subsequently turned out to be fake. Ignoring the said fact, there is no explanation that how subsequent exports were allowed when it was evident that foreign exchange was not repatriated within the specified period as the evidence of earlier exports were available to the Department in shape of Jewellery Pass Book maintained under (2(v) of SRO 266(I)/2001 and Para 2(j) of SRO 760(I)/2013. This reflects the negligence, inattention and ineptitude in discharge of duties and responsibilities which does tantamount to maladministration.

13. It is rather strange that the Collectorates had failed to recover the adjudged amount of fine imposed against the clearing agents, who are otherwise licencee of the Deptt. Perusal of the record shows that either no stay had been granted or the period for stay of order under appeal had been lapsed. But the Department had not initiated recovery proceedings for which no explanation could be advanced. This again reflects negligence, inattention, inefficiency and ineptitude in discharge of duties and responsibilities by concerned officers/officials of the Department which tantamounts to maladministration.

14. In order to ascertain the amount of foreign exchange involved in the import of gold and other raw materials and jewellery exported under SRO 266(I)/2001 dated 07.05.2001 and SRO 760(I)/2013 dated 02.09.2013, information was sought from Trade Development Authority of Pakistan (TDAP) and State Bank of Pakistan (SBP). The SBP vide its letter dated 12.02.2019, informed that in terms of both SROs 266(I)/2001 dated 07.05.2001 and SRO 760(I)2013 dated 02.09.2013, complete data of export and imports of precious metals and jewellery along with the amount of foreign exchange being maintained by TDAP and may be obtained from them. The TDAP vide its letter dated 15.03.2019 informed that all the remittances actually realized are maintained by the SBP and provided value of imports and exports of gold under the scheme. The following position emerges on the basis of information provided by TDAP. SRO 266(I)/2001, dated 7-5-2001 Amount in USD (Million) Period Value of locally procedure gold (Self Consignment) Value of imported gold (Entrustment) Value of Export Jan 2007 - Apr 2007 - 6.447 14.225 Dec 2008 8.014 1.917 0.625 Jan 2009 - Dec 2009 146.326 30.869 2.005 Oct 2010 - Nov 2010 19.469 6.795 0.456 SRO 760(I)/2013, dated 2-9-2013 Amount in USD (Million) Period Entrustment Scheme Self Consignment Scheme Sep 2013 - Dec 2018 Value of import Value of export Value of locally procured gold Value of export 92.196 11.536 15.139 19.314

15. Data provided by the SBP regarding realization against export of precious metals, jewellery and gemstone as reported by Banks under International Transactions Reporting System to SBP during the period from 2008 to 2018 is as under: Years Jewellery of Gold Other Articles of Jewellery-Other Precious Metal Article of Silver Jewellery Sub-Total 2008 24.681 0.046 1.817 26.544 2009 51.93 0.649 0.826 53.405 2010 109.558 1.086 1.411 112.055 2011 124.331 3.435 1.093 128.859 2012 247.944 14.922 1.624 264.49 2013 177.367 7.222 32.461 217.05 2014 6.511 6.941 2.578 16.03 2015 0.915 4.351 2.42 7.786 2016 0.74 5.026 1.812 7.578 2017 1.146 4.652 0.124 5.922 2018 1.216 3.997 0.005 5.218 Grand Total 746.339 52.327 46.171 844.837

16. Any analysis of the above data reveal that there is a gap between the value of import and value of export and lack of data synchronization relating to data provided by TDAP and SBP. It appears that TDAP has not put in placed any mechanism of monitoring and reporting of exports and imports taking place under SRO 760(I)/2013 dated 02.09.2013. In the absence of authentic and complete data of import and exports under the said SRO, no meaningful analysis can be carried out. It is, therefore, imperative that the Ministry of Commerce may consider conducting impact analysis of the incentive scheme as provided for under the Import and Export of Gold, Gold Jewellery and Gemstones Order, 2001 and Import and Export of Precious Metals Jewellery and Gemstones Order, 2013.

17. Similarly there are some weaknesses in the scheme as notified vide SRO 760(I)/2013 dated 02.09.2013 which need to be revisited to provide for a performance based quota scheme for import of gold, authentication of passbook entries by TDAP, only if all timelines are being met including realization of foreign exchange of previous exports and clearly spelled out penal clauses for defaulters and reporting mechanism to the concerned adjudicating authority. FINDINGS:

18. Failure of the Dept'l officer(s) to take timely action under Sections 156(1) and (14A) of the Customs Act, 1969 as well as under Import and Export Control Act, 1950 and failure to exercise due precaution, in the discharge of their duties and responsibilities resulting in massive loss of revenue to the national exchequer which is a sheer negligence, ineptitude, incompetence and inefficiency, which does tantamount to maladministration as defined under Section 2(3)(ii) of the FTO Ordinance. RECOMMENDATIONS: 19. (a) FBR to: (i) direct the Chief Collectors (North), (Central), and (Enforcement) South to initiate departmental enquiry to ascertain the Officers/Officials and take disciplinary action against those found involved in illegal / inadmissible imports/exports in violation of SRO 266(I)/2001 and SRO 760(I)/2013; (ii) ask the Collectors concerned to initiate recovery proceedings in accordance with law to recover the adjudged amount; (iii) request Ministry of Commerce to constitute a committee comprising of representatives from SBP, FBR and TDAP to review SRO 760(I)/2013 dated 02.09.2013 and proposed amendments to plug in the loopholes in the procedure to obviate chances of misuse/abuse in future; and (iv) report compliance within 45 days. (b) The Ministry of Commerce to:- (i) get a study conducted to measure impact analysis of the incentive scheme as provided for under the Import and Export of Gold, Gold Jewellery and Gemstones Order, 2001 and Import and Export of Precious Metals Jewellery and Gemstones Order, 2013; (ii) examine the proposal to prescribe bank guarantee against import value of precious metal instead of one percent cash margin and make necessary amendment in the Import and Export of Precious Metals Jewellery and Gemstones Order, 2013 notified vide SRO 760(I)/2013 dated 02.09.2013; (c) The Director General FIA to conduct inquiry against all concerned Departments/Agencies and initiate criminal proceedings against those found involved, in accordance with law. KMZ/56/FTO Order accordingl