2005 PLP (Trib (PTD)

ZAFAR IQBAL (MEMBER TECHNICAL).

This order will dispose of Customs Appeals Nos. K-342 and K-343 of 2004, as both these appeals arise out of common facts and involve identical questions of law.

2. The appellant happens to be a purchaser of a vehicle which was imported by a Foreign Diplomat namely, Mr. Thomars Bucher, an Attach of the Canadian High Commission, Islamabad. The said vehicle was released free of import levies under the provisions of Federal Government's Notification No.S.R.O.506(I)/88, dated 26-6-1988.

3. Within the framework of said regulations diplomats were entitled to enjoy exemption from import levies on their imports during their stay in Pakistan. However, such imported goods were not saleable in the open market before the passing of five years. Before the expiry of five years the sale of such goods was permissible only after obtaining necessary permission from the competent authority as envisaged under the said regulations.

4. According to the facts available on record, the disputed vehicle in the present matter was sold in the open market without payment of import levies and without obtaining necessary permission from the Federal Government as required in terms of para. 1 of the Notification No.S.R.O.506(I)/88. Even the requirements stated in para. 2 of the said notification were also not followed. Furthermore, the vehicles were got registered in the name of present appellant by making a false representation. The said vehicles were later on seized by the Customs for the violation of Customs law. The confiscation order has now been challenged by way of the present appeal.

5. The respondent served a show-cause notice on the importer and the appellant whereby both of them were called to explain that as to why the goods be not confiscated. The present appellant, who contested the matter, claimed that he is a bona fide purchaser and it was not in his knowledge that goods were being sold on a false representation by committing fraud and cheating. He accordingly, prayed before the Adjudication Officer for the release of the seized vehicle. The respondent however did not agree with the appellant's point of view. He concluded that appellant too was part, in this affair. He accordingly confiscated the vehicles as the same were sold in the open market without paying the import levies.

6. The appellant now contends that he purchased the disputed vehicle from the local market and was not aware about the existence of encumbrances due on the said vehicle. He claimed that he was a bona fide purchaser, hence entitled for the possession of goods.

7. The respondent, however, maintains that confiscation orders in both these appeals are correct and are in accordance with law.

8. We have heard the rival parties and record of the case has been perused. We believe that in order to dispose of the dispute, the following issues are relevant: (i) Whether or not the importer did comply with the legal requirements? (ii) Whether or not the sale and subsequent registration was an outcome of false representation? (iii) Whether or not the actions of all concerned vitiate the rights emerging out of their dealings?

9. In order to settle the first issue, it would be appropriate to reproduce the provisions of Notification No.S.R.O. 506(I)/88, dated 26-6-1988, which read as under:-- "S.R.O. 506(I)/88.

In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969) and section 7 of the Sale Tax Act, 1951 (III of 1951) and in supersession of this Ministry. Notification No. S.R.O. 878(I)/85, dated the 18th September, 1985, the Federal Government is pleased to exempt motor vehicles falling under respective sub-heading of Heading Nos. 87.02, 87.03, 87.04 and 87.11 of the First Schedule to the Customs Act, 1969 (IV of 1969), and imported into Pakistan by diplomatic representative or mission of a foreign Government in Pakistan from the whole of the customs duties and sales tax leviable thereon, subject to the following conditions, namely:-- (1) No such motor vehicle shall be sold or otherwise disposed of in Pakistan except with the prior consent of the Federal Government in the Ministry of Foreign Affairs given on an application made to it in the form set out below. (2) No such motor vehicle shall be sold or otherwise disposed of in Pakistan within two years of its importation to anyone other than the Department of Investment Promotion and Supplies of a diplomatic representative or mission of a foreign Government in Pakistan, except when the diplomatic representative by whom it was imported is transferred from Pakistan within two years of its importation and it has been used by him for not less than one year of his arrival in Pakistan. (3) No such motor vehicle shall be sold or otherwise disposed of in Pakistan before the expiration of five years from the date of its importation without payment of customs duties and sales tax at the following rates, namely:-- (i) If it is sold or otherwise disposed of before the expiration of three years, from the date of its importation. The whole duty and sales tax which would have been leviable at the time of its importation but for the exemption hereby granted. (ii) If it is sold or otherwise disposed of after the expiration of three years, but before the expiration of four years, from the date of its importation. 45% of the duty and sales tax which would have been so leviable as aforesaid; (iii) If it is sold or otherwise disposed of after the expiration of four years, but before the expiry of five years, from the date of its importation. 25% of the duty and sales tax which would have been so leviable as aforesaid. Provided that, if due to the transfer from Pakistan of the diplomatic representative by whom it was imported, the motor vehicle is sold or otherwise disposed of during the third year of its importation, the duty and sales tax payable shall be 60% of the duty and sales tax which would have been so leviable as aforesaid: Provided further that no duty shall be payable if the motor vehicle is sold to the Department of Investment Promotion and Supplies or the diplomatic representative or mission of a foreign Government in Pakistan. .."

10. A bare reading of the above stated regulatory provisions reveal that the disputed goods were not saleable in the open market except in accordance with the regulations in vogue.

11. The first requirement under the said notification was that the goods imported and enjoying exemption from import levies were not saleable or disposable otherwise except with the prior consent of the Federal Government.

12. There was another restriction that within two years of the importation, goods were not saleable in the open market. However, their sale to the Department of Investment Promotion and Supplies was permissible.

13. The record reveals that none of the above conditions were ever met by the importer. And the goods were sold in the open market by getting the vehicle registered through misrepresentation. And these facts have not been denied by the appellant. In para (iii) of the grounds of appeal, the appellant states that" who was sold the said vehicle by a motor dealer by the name of Mr. Javed who had insured registration of vehicle in his name after convincing him that no import duties or taxes in respect of the said vehicle were payable " The said statement supports to infer that the appellant who in league with the motor dealer as both the parties got registration by making false representation.

14. The vehicle happens to be a Toyota Land Cruiser on which slab of import levies is very high and usually such vehicles are imported by persons enjoying tax exemptions. This fact was known to the present appellant. He must have shown due care and vigilance before the purchase and where the ownership of the car happens to be in the name of a diplomat, he should have been more vigilant and should have ensured the presence of all clearance certificate required either from the Government or from the Customs department showing that the vehicle was free from encumbrances. No such effort appears to have been made by the appellant. An indolent attitude in law is not acceptable. There is a well-known saying of law that the law helps the diligent and not the indolent.

15. Even otherwise the conduct of the appellant is not very much straightforward. According to the fact sheet submitted by the department, association and connivance of the appellant with those who hoodwinked the law is very much evident. In these circumstances, his claim that he is an innocent purchaser does not have any force. One who seeks equity must come with clean hands but unfortunately, the conduct of the appellant is very much tainted. Thus our answer to the first issue is that the importer did not comply with the requirements of law and as such actions taken, subsequently were all in violations of the existing regulations.

16. As regards the next issue, it may be worthwhile to note that vide section 3 of the Sale of Goods Act, 1930 certain provisions of the Contract Act, 1872 still continue to apply in respect of the sale of goods. The provisions of sections 10, 14, 23, 24, 27, 29 and 30 of the Contract Act, 1872 are applicable to determine the validity of a contracts of sale. Obviously under the said provisions of the Contract Act, 1872, Courts refuse to enforce specific performance of contracts which are invalid as being fraudulent transactions. The usual form of fraudulent transaction is misrepresentation that is, a statement known to be false by a person who makes it.

17. In the present case all parties knew that vehicles were imported by a diplomat and its sale in the open market was subject to certain legal encumbrances. All concerned were, however, actively concealing fact with the intention to deceive Government. All such suggestions constitute fraud. In Derry v. Peek (1889) 14 App. Cas. 337, it was held that a person commits a fraud, if he makes a false statement:-- (i) believing that it is false, or (ii) not believing that it is true, or (iii) recklessly, without caring whether it is true or it is false.

18. The words "recklessly, without caring whether it is true or false" have been interpreted to mean "without a genuine belief in its truth".

19. For example where an owner of property wishing to sell it, causes certain letters to be written by other persons and addressed to him in which bogus offers at high prices are made with the sole intention of giving a fictitiously high value to the property and with the object of deceiving the intending purchaser, the making and exhibiting of such letters to the intending purchasers and inducing to purchase the property for the price represented by the letters amounts to fraud. The same is true in the present case. All those who were dealing in this matter had the knowledge that their actions are in violation of existing regulations. Thus contracts emerging out of fraudulent acts invalidate the contract very much and the Courts usually refuse to recognize such promises.

20. Keeping in view the above facts, it is evident that the acts of the concerned individuals including the present appellant in this case made the contract of sale invalid as the same was an outcome of misrepresentation. And the present appellant by pursuing the remedies under the Customs Act, 1969 is asking this forum to enforce an invalid contract a contract which the law does not recognize. In fact such an agreement falls out from the body of rule recognized and applied by the State in its administration of justice. Thus the argument of the appellant that he is an innocent purchaser is devoid of force.

21. It may be noted that any right obtained, acquired or arising out of a fraud and false representation does not have any legal value as their attainment is ab initio wrong. The general principle of law is that fraud vitiates everything. The registration of vehicle obtained by the appellant on the basis of false representation was thus a nullity in the eye of law as if sprang from an act of misrepresentation, which was not recognized by the legal norms.

22. The discussion on the issues brings us to the conclusion that actions of all concerned parties in the present case were violative of law. Nobody has come forward with clean hands. Fraud vitiates everything including contracts so made. Rights emerging from such contracts are not protected and are not recognized by law.

23. In these circumstances, we do not find any merit in these appeals, and the same are accordingly dismissed. H.B.T./378/Tax (Trib.) Appeals dismissed.