Dealing Officer: …Mr. M Mubeen Ahsan, Advisor
Mr. M Afzal Awan, Advocate
Mr. Irfan Javed, Deputy Collector of Customs (Appraisement)
Mr. Tahir Qureshi, Deputy Collector of Customs (Preventive)
Mr. Muhammad Amin, Deputy Collector of Customs, PQA
Dr Wasim Anwar, Assistant Collector of Customs (Appraisement)
The complaint of maladministration against the Customs Department has been filed on account of blocking the business of imports and exports of the Complainants in the customs computer network due to purported demands issued by various Customs Collectorates. It has been alleged that even when the goods were out of customs charge on payment of duty and taxes, the Respondents blocked their clearance. The Complainants submitted photocopies of two computer generated sheets dated 30-01-2006 showing the number of guarantees and dates of their expiry on the basis of which clearance was blocked.
2. The Complainants stated that the law did not empower the Respondents to delay, hold or decline to comply with the requirements of law for release of consignments for import and export through blockage of business of any importer or exporter through the computer network. It was argued that blockage of business without issuing show cause notices and completion of adjudication proceedings was unlawful and unauthorized and amounted to harassment. The recovery of Government dues could only take place after the process of adjudication and providing ample opportunity of hearing to the importer/exporter. The non-release of shipment by blockage through computer network and disabling the process of customs clearance was unlawful and maladministration in the eyes of law.
3. It was added that the Complainants had made a number of representations and personal visits to the Respondents for resolving the issue permanently but did not receive any response and a final notice through their Counsel was served on 27.01.2006. But the Complainants received no response regarding the blockage of business through the computer network. The Complainants are a leading tax-payer and generate revenue in foreign exchange to support the economy but the alleged maladministration has continued. It was requested that it may be declared that the blockage of business, in the absence of any adjudged liability / outstanding arrears, was unlawful and maladministration, Respondents be directed not to block clearance of goods themselves or on the request of any Collectorate without any adjudged liability, and during the pendency of this complaint they may be ordered not to block the business of the Complainant in the interest of justice.
4. The Assistant Collector of Customs PQA in reply to the complaint furnished a list of computer generated expired guarantees/bonds stating that only one case pertained to PQA Collectorate which had already been released/discharged/deleted from the computer on 04-03-2006 and no case of the Complainants was pending with the Collectorate. The Assistant Collector of Customs (Preventive), Airfreight Unit, also stated in the parawise comments of the Preventive Collectorate that it had not blocked the imports of the Complainants and the computer generated-list did not pertain to this Collectorate.
5. The Deputy Collector of Customs (Appraisement) BG Cell, in his reply to the complaint, raised preliminary objections that the complaint involved questions of law/interpretation of law, whether adjudication was required in a case of determined liability in terms of section 19 of the Customs Act read with the relevant notification and the indemnity bond read with sections 2(w) and 202 of the Customs Act, and asserted that the complaint was not maintainable before this office. It was further stated that the complaint has been filed with malafide intention not to pay already determined/adjudged revenue and to stop the Respondents from taking lawful action under section 202 of the Act. It was stated that where the tax liability has been determined/adjudged and the amount has been indemnified there was no need to issue a show cause notice or to adjudicate upon the case.
6. It was further stated that the Complainants had availed the exemption of custom duty at the import stage which was granted subject to certain conditions, limitations and restrictions as provided in the relevant notification and in the prescribed indemnity bond. It was clear that in case of default in fulfilling the conditions contained in the notification and the bond, the Complainants were required to immediately pay the indemnified amount. All the importers were well aware that on the date of execution of any security, guarantee, bond, etc; if the conditions were not fulfilled, they would be liable to action for recovery. By executing the bond the importers had agreed that in case of non-fulfillment of the conditions the determined amount would be recovered under section 202 of the Customs Act and clause (b) of sub-section (1) thereof empowered the Respondents to detain the goods of the importer. It has been clearly prescribed in the indemnity bond that “The importers further agree and bind themselves that the amount of duty covered by the Bond may be recovered as the arrears of customs duty under section 202 of the Customs Act, 1969 (IV of 1969)”.
7. It was argued that there was no need to start adjudication proceedings against the already determined amount. The Complainants were either totally ignorant about the mandatory provisions of law or adamant to avoid payment due to the Government. Adjudication was only required where the amount was not recovered under sub section (1) of section 202 of the Act. The Complainants did not identify any case where import/export was blocked prior to expiry of the date of the bond and the cases mentioned in the report of bills of entry blockage were only those where they had failed to fulfill the conditions of relevant notifications and bonds.
8. It was requested by the Deputy Collector of Customs that the complaint be rejected and the Complainants should not waste the time of this office on “false and fabricated complaints which are totally against the express provisions of law”.
9. The Counsel for the Complainants submitted a rejoined dated 03.04.2006 stating that while the indemnity bond pending with Port Qasim had been released, the Respondent was still blocking customs clearance due to computer blocking of other Collectorates. The learned Counsel stated that there was no provisions in the Customs Act which empowered the Respondents to stop the clearance on the basis of any computer generated sheets because under section 202 of the Customs Act there must be an order-in-original or a notice under section 202 of the Act. The learned counsel reiterated that blockage of shipments at the Port Qasim on the behest of other Collectorates without any adjudication order amounted to maladministration.
10. In another rejoinder to the reply of the Bank Guarantee Cell, the Counsel for the Complainants stated that in one case since the assessment was not finalized under section 81(4) of the Customs Act, the postdated cheque for Rs.650,863/= was liable to be released as the CBR had not so far decided whether Automatic Waste Removal System for Ring Frames was manufactured locally. In three cases it was for the CBR to take a decision and, therefore, action under section 202 of the Act amounted to maladministration. In yet another case the Karachi Collectorate had no jurisdiction to take action on the demand from the Lahore Dry Post. The learned Counsel reiterated that detention of goods should not be allowed through computer generated sheets.
11. The Deputy Collector of Customs was asked to submit a report about the procedure adopted by the Collectorate for blocking of consignments in the light of any Standing Order/Public Notice/C.G.O. etc and the status of blocking of consignments of the Complainants under section 202 of the Customs Act. The Deputy Collector reported that where the Federal Government/CBR allowed whole or part exemption of custom duty under any notification or special order on specified conditions such as production of installation/consumption certificates or clarification of the competent authority as prescribed in the relevant notification, the same were secured by bank guarantees, pay orders, indemnity bonds, postdated cheques, corporate guarantees, undertakings, etc. Similarly provisional release of goods was allowed against bank guarantees under section 81 of the Customs Act or under interim orders of the High Court and CBR. In such cases the importers were required to submit the requisite certificates within the prescribed period and in case of violation of any condition of the notification, encashment notices were issued to the importers. When the securities were detached by the BG Cell, formal demand notices were delivered to the clearing agent in order to avoid any legal dispute and to establish the demand of the Customs Department pending its clearance or payment.
12. The Deputy Collector stated that since 1992, securities have been entered in the computer and on expiry of each security, the computer automatically establishes a block against the importer. The Complainants had imported certain consignments of plant and machinery which were released against undertakings/postdated cheques subject to submission of CBR’s clarification whether the goods were manufactured locally or not. He submitted status report of six imports by the Complainants. In three cases the importer did not produce the requisite clarification from CBR; notices were issued for payment of duty and taxes but the payment was not made. In another three cases installation certificates dated 26.04.2006 have been furnished, although much later than the stipulated period of one year, and the securities would be released after condonation of delays.
13. During the first hearing of the complaint, the learned Counsel stated that
The Complainants have been facing the problem of blockage of clearance of their consignments for several years. In each case of import when the assessment was completed and duty and taxes paid and the importer approached the customs for release of goods, they handed over a computer printout stating that the entry was rejected because importer had defaulted on account of the cases shown in the printout pertaining to different Collectorates.
The computer printout was not a legal document and it did not show the reason due to which a duty-paid consignment ripe for release was blocked. On each such occasion an application was submitted to the customs who de-blocked the consignment (which took two to three weeks) and this procedure has been repeatedly applied on each import.
If the customs had any valid reason for withholding the clearance of a consignment, such as recovery of outstanding dues, the due process of law should be applied, show cause notice be issued and after affording opportunity of reply and hearing, a speaking order be issued clearly stating the decision of the competent officer for recovery and if any consignment has to be blocked it should also be clearly stated in the adjudication order.
14. The Deputy Collector of Customs (Appraisement) replied that the Bank Guarantee Cell of the Appraisement Collectorate controlled and took action in respect of thousands of bank and insurance guarantees, and other documents of commitment made by the importers/exporters and through the facility of computer the backlog was identified at regular interval. In this case the Complainants have not completed their commitments. They made several commitments in the past, and besides corresponding with them in each case, the computer printout has been utilized as an instrument of not only reminding the importers of their outstanding liability but also pressurizing them to fulfill their past commitments. He stated that the detention of goods was one of the several options available in section 202 of the Customs Act and the Customs Department was empowered to resort to this action after exhausting all legal requirements which did not necessarily require adjudication. He stated, for example, the submission of the installation certificates or payment against bank guarantees being the documents of established liability already admitted by the importers would not require any judicial proceedings.
15. The learned Counsel for the Complainants responded that most of the liabilities and requirements mentioned in the computer printout have been finalized and the obligations of the importer have already been met but the Bank Guarantee Cell has its own method of dealing with such finalized cases to harass the importer instead of deleting the completed cases.
16. After considering the arguments put forward by both the sides, Deputy Collector of Customs was asked to furnish the latest list of outstanding liabilities of the Complainants liable to action under section 202 of the Customs Act within seven days alongwith copies of the recovery orders or other notices already issued to them and the Complainants would submit a detailed reply alongwith evidence of the action taken by them in respect of these notices. The customs would examine the reply and furnish a report to this office.
17. Deputy Collector of Customs submitted report dated 26-06-2006 explaining that exemption from customs duties etc under various notifications/special orders were secured by bank guarantees, pay orders, indemnity bonds etc from the importer specifically submitting copies of six indemnity bonds of 2002 and 2004 and seven undertakings of the same period furnished by the Complainants which were still outstanding. He also submitted copies of some notices sent to the Complainants for submission of requisite certificates before taking action under section 202 of the Customs Act.
18. During subsequent hearing, the learned Counsel invited reference to the provisions of section 2(w) of the Customs Act and argued that the amount of any duty, surcharge, fine and penalty adjudged or demanded has to be made through an adjudication order passed by the competent authority. According to him it was clear that in order to recover the amount under sub section (2) of section 202 of the Act, the custom authorities should follow the adjudication proceedings which has not been done by them.
19. The learned Counsel further stated that under sub section (2) of section 202 it has been provided that the appropriate officer may serve upon the defaulter a notice in the prescribed form and the defaulter has been defined under sub-section (y) of section 2 of the Act as the person who fails to pay the outstanding arrears. He reiterated that the arrears have to be determined through an adjudication order. He added that in this particular case the import was blocked on the so-called non-clearance of a guarantee of PQA customs in 2004 which, in fact, had already been cleared. The problem of the importer was that at every step he was faced with blockage of import for which special efforts had to be made to relax the blockage which was soon imposed again.
20. The learned Counsel further stated that the customs authorities arbitrarily and with a view to harassing the importers imposed the condition that Board’s clarification on some points was necessary for the facility demanded by the importer. It was in fact the customs’ responsibility to obtain clarifications from the Board and not of the importer and since they were unable to obtain clarification from the CBR they started harassing the importers.
21. It was further stated that even where the issue of the installation certificate was delayed, not because of the fault of the importer but the fault of the Assistant Collector, and the required certificate was issued after the due date, action was initiated by the customs for recovery of the dues by blockage of import in the computer system. If the department considered that the installation certificate was not submitted in time they should have issued an appropriate notice to the importer and proceeded against him under the law.
22. The Assistant Collector of Customs replied that firstly outstanding arrears as defined under section 2(w) of the Act did not necessarily mean the amount adjudged against an importer but it also included the amount referred in the notice under sub-section (2) of section 202. He stated that in one case the importer had produced a post-dated cheque which was dishonoured and the Department had issued a notice to the importer for payment, the payment was not made nor a clarification was produced with the result that the Department had no choice but to resort to blockage of further imports.
23. He further stated that in a number of imports where the Department should normally assess the goods at statutory rates, a facility was granted under various notifications and goods were released against undertakings with clear commitment by the importers to provide certificates from CBR. The undertakings were accepted by the customs subject to the condition that the importer would fulfill the conditions of SRO.
24. Assistant Collector stated that the Custom House processed, administered and allowed concessions and facilities to the importers and there were precedents where goods have been released against indemnity bonds, bank guarantees, post-dated cheques etc under the disciplines of various notifications subject to conditions prescribed therein. The Custom House processed these cases on regular basis and these were not isolated instances where blockage of imports of a particular importer has been resorted to. This was a measure of last resort and a notice prior to that in each case was served on the importer.
25. The submissions made by the Complainants and the customs officials have been discussed at considerable length and the detailed arguments advanced by the Counsel for the Complainants have also been stated in the foregoing paragraphs. The main reason of complaint relates to the blockage of imports or shipments of the Complainants’ consignments on account of non-completion of conditions prescribed in a few earlier imports. The Complainants feel aggrieved when they are confronted with a computer-generated printout showing expired documents whose requirements have not been completed by the importer. The learned Counsel has repeatedly argued that any such action should be preceded by regular adjudication proceedings of issue of show cause notice, opportunity of hearing and issue of a speaking adjudication order by the officer of competent jurisdiction and he has strongly protested against the alleged illegal, malafide, arbitrary procedure of bypassing the adjudication process and establishing demand of duty and taxes without due process.
26. The customs officials on the other hand have taken pains to describe the procedure of grant of partial or total duty/tax exemption, the commitment of various types made by the importers, the non-fulfillment of the commitment so made and consequent responsibility of the customs to remind the importers and/or take action to enforce the recovery process by stopping clearance of goods under customs control in exercise of powers conferred under the Customs Act. With the computerization of the customs transactions the implementation process has been facilitated and accelerated and the blockage of documents is done on the expiry of the prescribed time-frame. It has been noticed that it is irksome for the Complainants to face blockage on account of commitment already finalized, for action against direction from the other Collectorates and specially the coercive action without prior notice. While the learned Counsel for the Complainants has repeatedly emphasized the necessity of adjudication proceedings, it transpires that the action taken by the customs authorities does not involve any new demand or determination of tax liability but non-compliance of conditions/requirements agreed to by the importers for duty and tax concession/exemption. It has also been observed that where the Counsel for the Complainants has argued that the Customs Department itself should obtain clarification from CBR, the factual position is different in that the importer themselves had made commitment to obtain and furnish CBR’s favourable clarification failing which they would be liable to pay the duty and taxes.
27. In view of the foregoing circumstances maladministration cannot be attributed against the Respondents. However, with a view to removing the difficulties, irritation, and perceived grievances of the importers/exporters, it is recommended that CBR direct the customs authorities to;
issue a notice to the importers under sub-section (2) of section 202 of the Customs Act about 15 to 30 days in advance of the process of blockage of clearance upon the defaulting importer/exporter; and
this early warning notice system be included in the computer software so as to ensure that an appropriately worded computer-generated notice is sent to the defaulting importer/exporter sufficiently in advance of the impending blockage of clearance.
It may also be ensured that in each case, as soon the required certificate, confirmation, payment or such document as may be required by Department is received, the same be immediately correlated with the corresponding entry and the direction for computer blockage be deleted without loss of time.
This office may be advised of the action taken by CBR within forty five days.
(Justice (R) Munir A. Sheikh)
Federal Tax Ombudsman
BEFORE THE FEDERAL TAX OMBUDSMAN
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