2010 PLP (Trib (PTD)

MUHAMMAD ARIF MOTON (MEMBER JUDICIAL-II).

This Order will dispose of Sales Tax Appeal No.K-270/2004, filed by the Appellant against Order-in-Original No.02/2004 dated 31-8-2004 passed by the Additional Collector of Customs, Port Muhammad Bin Qasim, Karachi.

2. Brief facts of the case are that FMC Corporation, USA, engaged in the manufacturer/formulation of agricultural pesticides, imported technical material namely `Carbofuran' in March, 2000 which is utilized in the manufacture of pesticides marketed under the brand of `Furadan'. The exemption of sales tax was claimed in terms of entry No.55 of the 6th Schedule of the Sales Tax Act, 1990 which allowed exemption of sales tax to "chemical inputs imported by regularized manufacturers of agricultural pesticides and used in the manufacture of agricultural pesticides". The assessment was claimed under heading 2924.1000 covered by the said serial number of 6th Schedule. The goods were cleared under the said heading, without payment of sales tax.

3. However, subsequently a dispute as to classification of the product arose. Being a multi national company, the duty was paid under protest and the material was sent to H.E.J. Research Institute of Chemistry, University of Karachi which confirmed that `Carbofuran' was a cyclic amide (cyclic carbamate). Based on this description, goods were apparently covered by heading 29.24 which covered "carboxyamide function compounds, amide-function compounds of carbonic acid". The department, however, took the plea that the goods were classifiable under heading 29.32 which heading covered "Heterocyclic compounds with oxygen hetero-atom" and exemption of sales tax was not available. A show cause notice was accordingly issued and adjudged against the company against which the present appeal has been filed.

4. The learned counsel, while appearing on behalf of the appellants essentially submitted the following arguments:

(i) That the technical name of the product in question is "Carbofuran" which is manufactured by various companies under their brand names. The brand name of Messrs FMC is "Furadan". The brand name of another company Sundate (S) (Pvt.) Ltd is "Sunfuran". To illustrate the point, copy of extract from Farm Chemical Handbook 2001 was submitted. In fact the relevant pages of the said book are an integral part of the impugned Order-in-Original. The chemical formula of various brands is the same as given in the Farm Chemical Handbook. (ii) That evidential record was produced at the time of hearing to the effect that brand of their competitors i.e. "Sunfuran" was imported by Messrs Pakistan Agro Chemicals (Pvt.) Ltd. during the relevant period and cleared by Customs under heading 2924.1000. The learned counsel for the appellants submitted that no case was made out against Messrs Pakistan Agro Chemicals (Pvt.) Ltd. and no recovery was made from them. It was, therefore, a case of discrimination and violation of Article 25 of the Constitution which lays down that similarly placed person cannot be treated differently. He placed reliance on the case titled as Nazir Ahmad v. Pakistan and others reported as PLD 1970 SC 453, PLD 1997 SC 582 in the case reported as Elahi Cotton Mills Ltd. and others v. Federation of Pakistan, 2002 PTD 976 of Sindh high Court, Karachi titled as Collector Customs, Central Excise and Sales Tax, Karachi (West) v. Novartis Pakistan Ltd. and host of other judgments relating to discrimination. (iii) The appellants' counsel also contended that any change of classification has to be prospective. Attention in this regard was invited by him to paragraph 74 of the present Customs General Order 12 of 2002. As per the said General Order, F.B.R. as well as the Law Division of the Government of Pakistan held that any change of classification can have prospective effect only. Since in the subject case, consignments of the appellants as well as consignments of its competitors were consistently being released under heading 2924.1000, the change of practice could only be prospective.

5. In view of the foregoing arguments, counsel for the appellants submitted that his client has been adversely affected and the sales tax was illegally recovered. The tax incidence has also not been passed on to buyers/consumers as confirmed by the Collectorate of Sales Tax, Lahore where the appellant is registered for sales tax purposes) vide their letter C.No.IV-ST(12)FMC/04/328 dated 8-5-2004, copy of which is already placed on record. He prayed that order may be passed for refund of sales tax amounting to Rs.67,80,244 illegally recovered in the three appeals bearing Appeals No. S.T.A.269-K/2004 to S.T.A.271-K/2004.

6. On a query by the Tribunal, the learned counsel submitted that subsequently in the budget 2001-2002, a specific sub-heading No.2932.9910 was created in heading 29.32 to specifically cover chemical formula of Carbofuran. Thus, Carbofuran was specifically covered under heading 29.32 w.e.f. July, 2001. The learned counsel did not object to that change of classification so long it was applied prospectively. Even otherwise exemption available under S.No.55 of the 6th Schedule was withdrawn in the budget 2000-2001. Therefore, the matter has otherwise been settled and since then they have paid sales tax on import of Carbofuran without any objection. Therefore, the issue relates only to import made prior to change in classification and withdrawal of exemption. It was also discussed and confirmed that no formal Classification Committee was constituted and case was not referred to Classification Centre of Custom House, Karachi, rather the classification was changed by the Collectorate officials on their own.

7. During discussion the learned counsel of the appellant produced a copy of recommendations of ADRC in the subject case wherein request of the appellant had been unanimously recommended by the ADRC to F.B.R. for refund of the said amount. The recommendations were sent to the F.B.R. in May, 2005 but no decision has so far been taken. The learned counsel submitted that they no longer want to wait for the decision of the F.B.R. on the said recommendations. He, therefore, requested that instead of pending the case for indefinite period, the same may be decided on merit by the Appellate Tribunal.

8. The department was represented by Mr. Taufeeq Ahmed Sheikh, Appraiser who defended the Order-in-Original. He pleaded that goods were always correctly classifiable under heading 29.32 and 'exemption of sales tax was not available. Claim of the classification under heading 29.24 was ab initio wrong; hence, recoveries were correctly made. The judgment was reserved on the basis of verbal arguments of both sides. The DR was however, directed to submit written comments, if so desired by the department. No comments have been filed to this date. The case is therefore being decided on the basis of arguments at the Bar advanced by both the sides.

9. After hearing both the sides the following issues were framed for decision by the Tribunal: (i) Whether the subject case is hit by provisions relating to departure from long existing practice since identical/similar goods were assessed under Tariff classification heading 29.24 and subsequently the classification was changed to 29.32? (ii) Whether the clearances of the appellant as well as their competitors were made under heading 29.24 till the dispute of classification arose? (iii) Whether the respondents have committed an act of discrimination attracting provisions of Article 25 of the Constitution by not recovering Government duties and taxes, on the past clearances made by competitors of the appellant? (iv) Whether a change of tariff classification is retrospective or prospective? (v) Whether refund is admissible if acts of discrimination and departure from existing practice against the Rulings of Federal Board of Revenue and honourable apex Court are apparent from the record of the case? (vi) Whether the burden of tax has been passed on to the final consumer attracting section 3B of the Sales Tax Act, 1990?

10. As regards issue No.(i) a perusal of the data of clearances from Karachi Appraisement Collectorate (daily list of import) provided by the appellant for the relevant period indicates that Pakistan Agro Chemical (Pvt.) Ltd. had regularly imported Carbofuran from their principal Sundate (S) (Pvt.) Ltd. and claimed assessment under heading 2924.1000. These imports were made in the same period in which the imports were being made by the present appellants whose consignments were also cleared under heading 2924.1000. It is apparent from the record that there was a long standing practice of assessing Carbofuran under heading 29.24 before the classification was changed to 29.32. It was, therefore, a change of long standing practice invariably deprecated by the higher judicial fora through a number of judgments on record. The first issue is, therefore, answered in the affirmative:

11. As regards issue No.(ii) it is clear from the foregoing, the clearances of the appellant as well as their competitors were made under heading 29.24 till the dispute of classification arose. The answer to issue No.(ii) is also in the affirmative.

12. As regards issue No.(iii) it is clear from the verbal submissions of the respondents that no recoveries were made from their competitors for past clearances made under heading 29.24. The present appellants are, therefore, at a disadvantage vis-a-vis their competitors. It is a laid down principle of law that two similarly placed persons cannot be treated differently. There is a plethora of judgments on the subject including some of the judgments relied upon by the counsel of the appellant. It was held by the Supreme Court of Pakistan in the case reported as PLD 1970 SC 453 that where the departmental practice has followed a course in the implementation of the relevant rule whether right or wrong, it will be extremely unfair to make a departure from it after a lapse of many years and to disturb rights that have been settled by a long and consistent course by the practice. Similarly, in the case of Messrs Elahi Cotton Mills v. Federation of Pakistan reported as PLD 1997 SC 582, it was held by the Supreme Court that legislature is competent to classify persons or properties into different categories subject to different rates of tax. But if the same class of property similarly situated is subject to an incidence of taxation, which results in inequality amongst holders of the same kind of property, it is liable to be struck down on account of infringement of the fundamental rights relating to equality.

13. In view of these clear cut rulings of the Supreme Court and in view of Article 25 of the Constitution, it is apparent that this is a case of discrimination whereby the present appellant is being treated differently than his competitors and his business is being seriously compromised. As such issue No.(iii) is answered in the affirmative.

14. As regards, issue No.(iv) regarding change of classification with retrospective effect, the matter has been settled by the FBR vide para 74 of Customs General Order No.12 of 2002. The ruling was issued by the F.B.R. after the approval of the Law Division. It was clearly held by the F.B.R. that when ruling has been issued by the C.B.R. or the Government in the matter of interpretation of tariff and when such ruling shows that any practice in the Custom House the assessment has been incorrect resulting either in the short levy of duty or the levy of excess duty, it must be held that such levy or excess levy have been due to error or misconstruction on the part of the officers of Customs. Such change will have prospective effect only. Even otherwise an innocent person paying duty on the goods in a bona fide manner to the satisfaction of the rules is protected from being further harassed. This practice may lead to complication and revision of the tariff rules may affect innumerable people for no fault of their own. Moreover, a customs officer is indulging into an act of disobedience of Federal Board of Revenue's orders in terms of section 223 of the Customs Act, 1969 by not subscribing to provisions in respect of departure from past practice. It is, therefore, held that in respect of issue No.(iv) change of Tariff classification can have prospective effect only and cannot be applied on past clearances.

15. As regards issue No.(v) it has been observed supra that innocent person cannot be harassed for no fault of his own. The tax was recovered from the appellants under duress and under protest subject to outcome of adjudication proceedings. The tax cannot be imposed due to discrimination and retrospective change of classification. Government cannot retain the money which is not due to it. This is the common law position advocated by the judgment of Honourable Supreme Court in Pfizer Laboratory reported as PLD 1998 SC

64. As such issue No.(v) is answered in the affirmative.

16. As regards issue No.(vi) whether the tax incidence was passed on to the buyer and whether section 3B of the Sales Tax Act, 1990 is attracted, this matter has already been settled in the light of the report of the Collectorate of Sales Tax, Lahore issued vide their C.No.IV -ST(12)FMC/04/328 dated 8-5-2005 wherein it was reported that the said unit did not include the sales tax on their prices and sold the items under dispute on the same prices as were earlier fixed. The departmental representative did not dispute this assertion. Thus it was found that the incidence of sales tax had not been passed on to the end consumer. As such issue No.(vi) is answered in negative.

17. For these foregoing reasons, the impugned order is hereby set aside and the appeal is accordingly allowed. H.B.T./29/Tax(Trib.) Appeal allowed.