2020 PLP (Trib (PTD)

MUHAMMAD SADIQ (MEMBER TECHNICAL).

The current proceedings have been triggered from the Honourable Lahore High Court Lahore's Order dated 13.02.2017 in Customs Reference 02/2015 remanding the case to the Tribunal. Accordingly this judgment shall decide the above mentioned Customs appeal filed against Order-in-Original No. 47/2014 dated 27.06.2014 (the impugned order) passed by the learned Additional Collector of Customs (Adjudication), Lahore.

2. Brief facts of the case are that the Deputy Director, Directorate of Customs Post Clearance Audit, vide contravention report C. No. PCA/LHR/C/13/2011/dated 26.07.2013 are that Messrs Coca Cola Export Corporation (Pvt.) Limited, 5-E/II, Gulberg-III, Lahore (the Appellant) imported consignments of flavouring substances for use in aerated beverages and got it cleared under PCT heading 3302.1090, instead of PCT heading 3302.1010 through Model Customs Collector (Preventive), Air Freight Unit (AFU), Allama Iqbal International Airport, Lahore. By declaration as aforesaid (under PCT heading 3302.1090 instead of correct PCT heading i.e. 3302.1010) the appellant claimed and availed inadmissible benefit of Federal Excise Duty chargeable @ 50% ad valorem. On the basis of the above reported facts, the case was referred for adjudication and M/s Coca Cola Export Corporation (Pvt.) Limited, 5-E/II, Gulberg-III, Lahore were charged with the contravention of the provisions of Section 32(1) & (2) of the Customs Act, 1969 (the Act) read with Section 3(1) of the Sales Tax Act, 1990 further read with Sections 3(1)(b) and 12(3) read with Sr.No. 41 of Table-I of the Federal Excise Act, 2005 punishable under clause (14) of Section 156(1) of the Act, and were called upon to show-cause as to why the duty and taxes amounting to Rs. 27,39,907/- be not recovered under section 33(5) of the Sales Tax Act, 1990, Section 14 of the Income Tax Ordinance, 2001 and Sections 14 and 19 of the Federal Excise Act, 2005.

3. The adjudication proceedings culminated into passing of the impugned order-in-original. The operative part of the said order reads as follows:-- " ..the allegations levelled in the show-cause notice stand established against the respondents Messrs Coca Cola Export Corporation (Pvt.) Limited, Lahore. Accordingly, it is hereby ordered as under-- (i) Liability of evaded amount of duties and taxes of Rs.27,39,907/- (rupees twenty seven lacs, thirty nine thousand, nine hundred and seven only) is adjudged against Messrs Coca Cola Export Corporation (Pvt.) Limited, 5-E/II, Gulberg-III, Lahore and are directed to pay the same into national exchequer vide Sections 32(1) and 32(2) of the Customs Act, 1969 read with Sections 3(1)(b), 6, 11, 22 and 26 of the Sales Tax Act, 1990 further read with 3(1)(b), 12(3) read with Sr. 41 of Table-1 of the Federal Excise Act, 2005 read with Section 148 of the Income Tax Ordinance, 2001; and (ii) Penalty of Rs.10,00,000/- (rupees ten lac only) is imposed upon Messrs Coca Cola Export Corporation (Pvt.) Limited, 5-E/II, Gulberg-III, Lahore under section 32(1) & (2) of the Customs Act, 1969 read with section 3(1)(b) of the Sales Tax Act, 1990 further read with sections 3(1)(b) and 12(3) read with Sr. No. 41 of Table-I of the Federal Excise Act, 2005 punishable under clause (14) of Section 156(1) of the Customs Act, 1969, and Section 33(5) of the Sales Tax Act, 1990, Section 148 of the Income Tax Ordinance, 2001 and Sections 14 and 19 of the Federal Excise Act, 2005. The penalty shall be in addition to the default surcharges payable under section 8 of the Federal Excise Act, 2005, Section 34 of the Sales Tax Act, 1990, and Section 205 of the Income Tax Ordinance, 2001."

4. Aggrieved by the above impugned order, the appellant filed the instant appeal mainly on the following grounds:-- (i) That the Order-in-Original No. 47/2014 dated June 27, 2014 passed by the learned Additional Collector of Customs (Adjudication), Lahore under section 32 read with section 179 of the Customs Act, 1969 is bad in law and against the facts of the case. (ii) That the learned additional collector has erred in assuming jurisdiction in the case of the appellant, under section 32 read with section 179 of the Act without appreciating the position that powers to recover short paid federal excise duly, sales tax and withholding income tax could not be exercised under the said provisions as such powers under the law vest with the Inland Revenue Authorities. (iii) That without prejudice to ground of Appeal No. 2 above, the learned additional collector has erred in passing the impugned order beyond the time limitation provided for under the provisions of section 179 of the Act. (iv) That without prejudice to grounds of Appeals Nos. 2 and 3 above, the learned additional collector has erred in adjudging default on account of federal excise duty, sales tax and income tax aggregating to Rs.2,739,907/- against the appellant as such action is hit by limitation of time provided for in the relevant statutory provisions. (v) That the learned additional collector has erred in adjudging default of Rs.2,739,907/- against the appellant by holding that imports made by the appellant were allegedly classifiable under PCT heading 3302.1010 and thus attracted federal excise duty @ 50% without appreciating the position that the subject imports constituted ingredients/raw materials for manufacture of 'beverage concentrates' classifiable under PCT heading 3302.1090 and were therefore not liable to imposition of federal excise duty. (vi) That without prejudice to grounds of Appeals Nos. 2, 3, 4 and 5 above, the learned additional collector has erred in adjudging default on account of alleged short payment of federal excise duty, sales tax and income tax without appreciating the fact that the aforesaid levies had already been discharged by the appellant, thus not causing any 'revenue loss' to the department. (vii) That without prejudice to grounds of Appeals Nos. 2 to 6 above, the learned additional collector has erred in imposing penalty and default surcharge under the relevant legal provisions without appreciating the fact that there was no element of mens rea on part of the appellant.

5. On the other hand, Mr. Muhammad Awais Advocate, appeared on behalf of the respondent department and defended the impugned order.

6. We have gone through the case record and heard the arguments. The pivotal facts of controversy revolve around; (a) the exercise jurisdiction of the Customs authorities for realizing Sales Tax, Excise duty and Income Tax; (b) the limitation period; (c) the issue of classification of the impugned goods; and (d) the chargeability of Federal Excise Duty under the Federal Excise Act, 2005 on raw materials and ingredients for concentrates. These areas are dilated upon and evaluated as follows; (a) The controversy of jurisdiction has a material bearing upon the legality of the, show-cause notice under section 32 of the Act and the adjudication order passed. The appellant challenged this aspect on the ground that concerning the recovery of Sales Tax, Federal Excise and Income Tax, the jurisdiction of Customs officers would have been ousted under Section 32 of the Customs Act, 1969. Rather enabling provisions would be like ones under section 11 of the Sales Tax Act, 1990 and section 14 of the Federal Excise Act, 2005 respectively with respect to Sales Tax and Federal Excise duty (to be exercised by the officers of Inland Revenue Service). The department opposed the contention on account of the legal provisions incorporated under Section 32 of the Act not only cover Customs duties but also other taxes. It is viewed that the demand for taxes through show-cause notices is not restricted to Customs Duty alone. This position has been manifested by express provision of the relevant enactments as well as interpretation by the Superior Courts as briefly enumerated below: (i) Not only customs duties at import stage but other taxes too are within the ambit of the jurisdiction of Customs Officer. The provisions of subsection (2) of Section 32 of the said Act which are, relevant here read as follows: "(2) Where, by reason of any such document or statement as aforesaid or by reason of some collusion, any duty taxes or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within [five] years of the relevant date, requiring him to show cause why he should not pay the amount specified in the notice." (ii) It is useful to refer to provisions stipulated under subsection (1) of Section 6 of the Sales Tax Act, 1990 which expressly provide collection of Sales Tax at import stage as it were a duty of Customs in following terms: "

6. Time and manner of payment.

(1) The tax in respect of goods imported into Pakistan shall be charged and paid in the same manner and at the same time as if it were a duty of customs payable under the Customs Act, 1969 '[and the provisions of the said Act' [including section 31A thereof], shall, so far as they relate to collection, payment and enforcement "[including recovery] of tax under this Act on such goods where no specific provision exists in this Act, apply].." (iii) Likewise subsections (3) and (4) of Section 12 of Federal Excises Act, 2005 which are relevant to the collection of Federal Excise duty at import stage are also quoted below: "(3) Where any goods are chargeable to duty at the import stage, duty will be assessed and paid on the value determined in accordance with section 25 of the Customs Act, 1969 (IV of 1969), including customs duties payable thereon. (4) Where any good is chargeable to a duty on the basis of retail price, duty thereon shall be paid on the retail price fixed by the manufacturer, inclusive of all [duties,] charges and taxes, other than sales tax levied and collected under section 3 of the Sales Tax Act, 1990, at which any particular brand or variety of such goods should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price and such retail price shall, unless otherwise directed by the Board, be legibly, prominently and indelibly indicated on each goods, packet, container, package, cover or label of such goods: Provided that where so and as specified by the Board, any goods or class of goods liable to duty on local production as percentage of retail price, the provisions of this subsection shall mutatis mutundis apply in case such goods are imported from abroad: Provided further that the Board may through a general order specify zones or areas only for the purpose of determination of highest retail price for any brand or variety of goods.]" (iv) Similarly under Section 148 of the Income Tax Ordinance, 2001, the Collector is empowered to realize income tax at import stage in the like manner as if it were a duty of Customs. (v) In view of the foregoing position, it is quite evident that the show-cause notice was lawfully issued by the Customs authority invoking section 32 of the Customs Act, 1969 through recourse to adjudication proceedings under section 179 of the said Act for recovery of evaded taxes (Sales Tax and Federal Excise) pertaining to the instant case. Regarding the jurisdiction over Sales Tax, Federal Excise etc., the Honorable Lahore High Court, Lahore, in a case titled "M/s Gulistan Textile Mills Limited v. Federation of Pakistan and others" (2019 PTD 353) unequivocally held that Customs Authorities have jurisdiction to demand Sales Tax and Federal Excise Duty short levied or evaded at the time of import. The relevant part of the said judgment is reproduced below; " ..Thus there is no doubt that the word "taxes" was included in the scheme of the Act, 1969 with a purpose and deliberately. It is admitted on all hands that no taxes are levied under the provisions of the Act, 1969 and the only charge which has been imposed is the duty of Customs under Section 18 of the Act, 1969, which prescribes the goods which are liable to imposition of customs duty prescribed in the first schedule. The provisions of Section 18 also envisage the levy of regulatory duty as well as additional customs duty. However, the entire Customs Act, 1969 does not refer to the levy of taxes to which a reference could be made or relation could be established vis-a-vis Section 32 and Section

179. As stated above in the preceding paragraphs, not only the Income Tax Ordinance, 2001 but also the Sales Tax Act, 1990 require the levy and recovery of withholding tax as well sales tax on the imported goods for their recovery to be effected at the time of importation by the officers of Customs. The officers of Customs, therefore, act as the collecting agent for the income tax as well as sales tax authorities from every imported of goods on the value of good at the rate specified. It was perhaps thought anomalous by the legislature that the recovery if any effected or short-levied be recovered by the adjudicative process in the Act, 1990 or the Ordinance, 2001 rather than the one prescribed in the Act, 1969. In my opinion the amendments which have been brought about merely serve to reconcile the powers of the officers of Customs and not only confers the power to recovery at the importation stage but also confers the power of adjudication under Section 32 of the Act, 1969.

23. Notwithstanding the above, the argument raised by the petitioners would, at best, result in conferring a concurrent jurisdiction on the officers under the Ordinance, 2001 and the Act, 1990 together with the officers of Customs under Section 32 of the Act, 1969. It has not been asserted by the petitioner that conferring of the jurisdiction on the officers of Customs is ultra vires the provisions of the Constitution of Islamic Republic of Pakistan, 1973 and could not have been so conferred. If the power is concurrent, then the only plausible defence which may be taken is that the adjudicative process ought to be initiated by either of the adjudication officers and not by both. Or that a determination by one would operate as preclusion in respect of a subsequent adjudication on the same issues. " (vi) It is further viewed that the dictum held by the Honorable Supreme Court of Pakistan in case titled "Collector Sales Tax and Central Excise v. Zamindara Paper and Board Mills" (reported as 2007 PTD 1804), held that "...instead of taking into consideration technicalities, the Court looks into the matter with different angles namely as to whether substantial compliance has been made or if any sub-rule has been omitted what prejudice is likely to cause to the party". In view of the foregoing objection regarding the jurisdiction is untenable. (b) The Appellant has assailed the impugned order on account of the show-cause notice having been barred by time. The department controverted this stance. Regarding the limitation period it is viewed that the relevant provisions attracted are as per subsection (3A) of section 32 of the Act, which stipulates "audit" within a period of five years. It reads as follows: "(3A) Notwithstanding anything contained in subsection (3), where any duty [, taxes] or charge has not been levied or has been short-levied or has been erroneously refunded and this is discovered as a result of an audit or examination of an importer's accounts or by any means other than an examination of the documents provided by the importer at the time the goods were imported, the person liable to pay any amount on that account shall be served with a notice within [five] years of the relevant date requiring him to show-cause why he should not pay the amount specified in the notice [Provided that if the recoverable amount in a case is less than one hundred rupees, the Customs authorities shall not initiate the aforesaid action]" As audit was conducted within the stipulated period, hence the objection regarding the case being barred by time is also untenable. (c) The appellant has also assailed the classification of the impugned goods under PCT heading 3302.1010 (as decided under the impugned order) as against the claimed classification of PCT heading 3302.1090. For ease of reference, the said PCT heading quoted below: 33.02 Mixture of odoriferous substances and mixtures (including alcoholic solutions) with a basis of one or more of these substances, of a kind used as few materials in industry; other preparations based on odoriferous substances, of a kind used for manufacture of beverage. - Of a kind used in the food or drink industries: 3202.1010

Flavour and Concentrates for use in aerated beverages. 3202.1020

Favours and Concentrates for use in food industry. 3302.1090

others". The goods imported by the appellant are subjected to further processing so as to be transformed into "concentrates to be used in aerated beverages". The said goods per se, are not "for use in aerated beverages". Hence balance of probability of classification shall weigh in favour of the description, "others" attracting PCT heading 3302.1090. Nonetheless the classification, per se, shall not finally determine chargeability to Federal Excise Duty which shall be done under the First Schedule to the Federal Excise Act, 2005 (to be discussed in the coming paragraphs). (d) Under the impugned order, it has been held that the federal excise duty @ 50% is attracted. The appellant has averred that said stance is without appreciating the position that the subject imports constituted ingredients/raw materials for manufacture of 'beverage concentrates' classifiable under PCT heading 3302.1090 and were therefore not liable to imposition of federal excise duty in terms of First Schedule to the Federal Excise Act, 2005. The relevant portion under the First Schedule to Federal Excise is quoted below: "FIRST SCHEDULE [see section 3] TABLE 1 EXCISABLE GOODS S.No. Description of goods Heading / sub-heading Number Rate of duty (1) (2) (3) (4)

41. Flavours and concentrates for use in aerated beverages 3302.1010 Fifty per cent ad val. Interpretation.--(1) Unless the intent appears otherwise, for the purpose of levy of duty and excise, the description of goods shall prevail upon the tariff classification. However in order for interpretation of description of any goods or verification of any characteristics of any product, the reliance shall be made on the relevant version of the Explanatory Notes to the Harmonized Commodity Description and Coding System. (2) The rate of duty mentioned in column (4) of the above table shall also apply on the goods mentioned in column (2) thereof, if imported, or brought from non-tariff areas in case of notified goods." It is evident that as per the aforesaid "Interpretation", for the purpose of "levy of duty and excise, the description of goods shall prevail upon the tariff classification" This issue was also referred to Board as well. The Board's reply is as fallows:- "...I am directed to refer to the U.O. No. 3(10)Tar-I/89-Pt-A dated 08.08.2011 on the subject cited above and to say that the Federal Excise Duty 50%, as is chargeable under S. No. 41 of Table-1 of the First Schedule to the Federal Excise Act, 2005, applies to "Flavours and Concentrates for use in aerated beverages". This entry does not change FED on the raw materials used in the manufacture/production of Flavor and Concentrate. This position is evident from the explanation / interpretation appended to Table-1 of the First Schedule to the Federal Excise Act, 2005 which states that FED is chargeable on the basis of description of the goods and the PCT heading is given only for ease of reference.

2. If, the goods imported by the registered persons are raw materials/ingredients and not Flavor and/or Concentrate for aerated beverages, then, in the opinion of Sales Tax/Federal Excise Wing, the goods imported by the registered persons are not classifiable under PCT 3302.1010 and therefore, do not attract levy of FED at import stage." It is established principle of jurisprudence that fiscal statutes are to be construed strictly. The expression given under the entry at Sr. 41 of the First Schedule is "Flavours and concentrates for use in aerated beverages" whereas the goods imported by the appellant are ingredients for concentrates for beverages. They would be transformed into concentrates for beverages after addition of other ingredients and after certain processing of about six hours in peculiar industrial process. The output "concentrate" would be two fold (i) in liquid form and (ii) powdered form. To work as concentrate of beverages the two would be mixed together in specified ratios along with other ingredients/materials for preparation of beverages. Hence the strict construction of fiscal liability shall exclude "the raw materials" or "ingredients" from the purview of the liability of output or "the concentrate" produced from such inputs or" ingredients/raw materials". It is pertinent to note that if duty is charged at import stage the same shall be adjustable against the output. Hence there would not be any benefit to the appellant. Accordingly there is no economic reason for mis-declaring the product with a view to suppress quantum of duty (and taxes) at import stage. Hence the impugned goods do not attract Federal Excise Duty.

7. In view of foregoing position, the impugned order is held untenable and the same is set-aside accordingly.

8. The appeal is disposed of in above terms with no order to the costs.

9. The Parties be informed through registered post A.D or by UMS.

10. The File be consigned to records after completion. SA/29/Tax (Trib.) Appeal allowed.