Dr. Tahir Qureshi, Deputy Collector of Customs (Preventive), AFU
The complaint has been filed against the Assistant Collector of Customs, AFU, Karachi about a demand of Rs.29,84,054/- which the Complainants have alleged as “illegal, contrary to law, perverse, arbitrary and unreasonable, unjust, biased, oppressive and discriminatory, and based on irrelevant grounds.” It has been alleged that “these acts of the Respondent have rendered the demand notice nullity in the eyes of law.”
2. It has been stated that the Complainants imported 10 consignments of telecommunication equipment liable to 25% duty under customs tariff. They sought clearance through 10 bills of entry filed during the period 03-03-2004 to 24-03-2004 claiming benefit of customs duty concession under SRO 358(I)/2002 read with CBR C.No.1(9) Mach/98-Vol-IV dated 01-01-2004 as under serial No.12 of the table of the SRO the Federal Government had granted exemption of customs duty in excess of 10% on import of plant, machinery and equipment and articles imported for the service sector including telecommunication sector if not manufactured locally as certified by the Board of Investment (BOI). They approached BOI to recommend to CBR for release of the consignments under concessionary duty on provisional basis against bank guarantee which was allowed by the CBR. Consignments were released on payment of 10% duty and 15% sales tax and the remaining duty and tax amount was secured by 10 separate bank guarantees.
3. BOI sought the opinion from Engineering Development Board (EDB) regarding local manufacture of imported machinery and EDB communicated the status of locally manufactured items vide letter dated 16-02-2004 which was forwarded to the Collector of Customs (Appraisement) and the Collector of Customs (Preventive). In view of CBR’s letter, the Department required the banks to make payment of the amount secured through bank guarantees and the payment was made by pay orders to the Collector on demand. After the payment had been made the Complainants approached the Respondent for release of bank guarantees but the Assistant Collector of Customs AFU issued a demand-cum-show cause notice dated 18-02-2006 alleging that although the secured amount had been recovered, the Complainants had failed to pay additional duty @ 1.5% per month amounting to Rs.29,85,054/-under section 83A of the Customs Act.
4. It was stated in the Demand Notice that since the subject goods were manufactured locally, these were subject to statutory rate of duty and while CBR had communicated the decision vide letter dated 01-01-2004, taxes were paid on different dates from 03-11-2004 to 21-07-2005. As such the Complainants were required to pay additional duty @ 1.5% under section 83A of the Customs Act. It was stated that the date of CBR letter was actually 10-04-2004 and on their request the adjudicating officer had reduced the amount of Rs.29,85,054 to Rs.2,452,950/- which clearly proved that the show cause notice was materially incorrect rendering it nullity in the eyes of law.
5. It was stated that under section 83A of the Act it has been provided that any person failed to pay the dues recoverable under the Act within the prescribed time, he shall, in addition to the dues payable, be liable to pay additional duty @ 1.5% per month and the period of default shall be reckoned from the day following the date on which the dues were required to be paid. Since the whole differential amount of duty had been secured through bank guarantees, the customs authorities were at liberty to encash the guarantee on the due date i.e. immediately after receipt of CBR’s letter dated 10-04-2004. The issuing banks made payment as and when demanded by the customs. After depositing the bank guarantees the Complainants were absolved of any further responsibility regarding payment on the due date and any delay in recovery of duty secured through bank guarantees lay on the customs officials who failed to discharge their duties promptly, efficiently and diligently. Burdening the Complainants with additional duty for the inefficiency of the customs officials was illegal and unjustified and the demand was void ab initio.
6. It was argued that additional duty was leviable only in case of a deliberate failure to pay the duty and taxes but no malafide could be attributed to the Complainants for late payment of duty and taxes and the imposition of additional duty and tax was not justified. By not encashing the bank guarantees the Respondents had waived their right to object to delay in payment. Since the fault lay on the customs officials they should not be allowed to take benefit of their own failure by charging additional duty from the Complainants. It was requested that the dispute be resolved in the favour of the Complainants and Respondent be advised to withdraw the impugned (demand-cum) show cause notice.
7. The Deputy Collector of Customs AFU replied to the complaint that the status of the manufacturing of the goods was confirmed vide CBR letter dated 10-04-2004 read with EDB letter dated 16-02-2004. The proceedings of the case pertaining to the demand was already in process before him and until an order was passed it would be premature to pass any comments. The amount payable by the Complainants was not deposited on the date it was payable under section 83A of the Customs Act. The issues pertained to legal interpretation of section 83A of the Act on the basis of which show cause notice was issued. No maladministration was involved because the adjudication order had not been issued and the importer or his authorized representative had not appeared before the adjudicating authority and the importers had also informed that they had already applied to the ADRC. It was requested that the importing firm be asked to submit their contention and view-point before the adjudicating officer for a fair decision.
8. During the hearing of the complaint, the Counsel for the Complainants explained the circumstances under which the equipment imported by the Complainants was provisionally released under section 81 of the Customs Act during the period 03-03-2004 to 24-03-2004 and a reference was made by CBR to BOI for certification whether the goods were manufactured locally or not. BOI referred the matter to the EDB who sent the list of goods manufactured locally, which was forwarded to the Collector vide letter dated 10-04-2004.
9. The learned Counsel stated that the customs authorities directed the bank to encash the guarantees in respect of those items, which were locally manufactured according to the list of the EDB. In this regard no notice for payment or for release of bank guarantee was sent to the Complainants. The dates of encashment of bank guarantees from 03-11-2004 to 26-05-2005 have been shown in the Department’s letter. Now the Respondent has issued a notice for payment of additional duty under section 83A of the Customs Act for the period 01-01-2004 to the dates of encashment of the bank guarantees @ 1.5% per month. The Department has taken the crucial date 01-01-2004 as the date on which CBR allowed release of machinery and equipment under SRO 358(I)/2002 against bank guarantees till the final decision by the CBR. It was argued that section 83A of the Act provided that the liability to pay additional duty would arise if the duties were not paid within the prescribed time. In this case there was no prescribed time for payment of duties because provisional release was allowed by CBR in order to decide the admissibility of exemption under SRO 358(I)/2002 and the matter remained under correspondence amongst CBR, BOI and EDB. Therefore, the learned Counsel argued, 01-01-2004 should not be taken as the crucial date because goods were not imported on this date.
10. The learned Counsel stated that the importers had discharged the customs duty liability by submitting bank guarantees which could be encahsed by the Customs Department on any date they wanted to. He stated that under sub-section (3) of section 81 it has been provided that on completion of final determination the amount already guaranteed shall be adjusted against the payable amount on the basis of provisional determination. In this particular case when the customs authorities decided the final liability of duty, they got the same adjusted from the bank guarantees. The entire action was taken by the CBR or the field customs authorities and the Complainants at no stage retained initiative to take any action.
11. The learned Counsel invited attention to the judgment cited in a complaint where it has been held that the additional duty/tax was chargeable only when there was a deliberate failure to paid duty. No malafide act could be attributed to the Complainants and the demand/imposition of additional duty was not justified. He cited a recent judgment by the Federal Tax Ombudsman in Complaint No.538-L of 2005 where it has been held that since Customs Department had failed to encash the bank guarantees in time it had also waived its right to object to the delay in payment, that delay arose due to Department’s own default and they could not be allowed to take benefit of their own failure.
12. The learned Counsel further argued that the demand-cum-show cause notice was issued by an Assistant Collector of Customs who was competent to adjudicate on cases involving duty and taxes not exceeding Rs. 2,50,000/- and even if taken up by the present Deputy Collector of Customs, he was competent to decide cases involving duty and taxes not exceeding Rs.500,000/-. He argued that the notice which should have been issued by an Additional Collector was not valid under law.
13. The Deputy Collector of Customs reiterated the points mentioned in his reply to the complaint. He stated that the proceedings of the demand notice were under way and the complaint did not involve maladministration. He argued that the process of adjudication be allowed to continue and the complaint be rejected.
14. The contents of the complaint, the arguments put forward by the Counsel for the Complainants and the Respondent’s reply have been examined. It transpires from the facts stated in the foregoing paragraphs that 10 consignments were allowed release provisionally by the CBR vide letter dated 01-01-2004 on payment of customs duty @ 10% securing the rest of customs duty against bank guarantees subject to the condition of final decision by the CBR. Vide its letter dated 10-04-2004 CBR allowed the benefit of SRO 358(I)/2002 to the machinery and equipment not manufactured locally as intimated by the EDB. The crucial date for encashing the bank guarantees of the goods not entitled to concessionary rate of duty was the one on which CBR’s letter was received by the customs authorities who should have encashed the guarantees on receipt of the CBR’s decision. It is significant that while nine bank guarantees were filed in Marcy 2004 and one in April 2004, the Department did not encash them on receipt of CBR decision dated 10-04-2004, which was done in November 2004 to May 2005.
15. Assistant Collector of Customs issued a demand-cum-show cause notice on 18-02-2006 requiring the Complainants to pay additional duty @ 1.5% per month under section 83A of the Customs Act. It has been stated by the Department that the amount has been calculated from the period of submission of the bank guarantee and its encashment by the customs. No reason has been given why the encashment was not obtained immediately on receipt of CBR’s decision.
16. It is established that the customs officials did not act promptly and did not exercise due diligence to recover the amounts for which the bank guarantees had been submitted. The delay cannot be attributed to the Complainants as it clearly occurred on account of maladministration on the part of the customs authorities.
17. As observed in the decision of this office in Complaint No.538-L/2005, the Customs Department had failed to encash the bank guarantees in time and had waived its right to object to the delay in payment, the delay arose due to the Department’s own default and they could not be allowed to take benefit of their own failure. There is no justification under the customs law to demand additional duty from the Complainants on account of the maladministration of the customs for the delay in encashment of the bank guarantees and the Demand-cum-Show Cause Notice has no legal validity.
18. It is recommended that CBR direct the Collector of Customs (Preventive) to