REEZAN TRADING COMPANY Versus DEPUTY COLLECTOR OF CUSTOMS PORT LAHORE

This is constitutional petition filed by M/s. Reezan Trading Company, petitioner, calling in question the order of the Deputy Collector of‑ Customs, Lahore, dated 3‑7-1984, that of the Collector of Customs, (Appeals) Lahore, dated 13‑10‑1985 and that of the Additional Secretary Finance, Government of Pakistan, dated 25‑4‑1986.

2. The brief facts of the case are that on 29‑ii‑1979, the petitioner solicited inquiry from M/s. E. Merck Darmstadt, West Germany, with regard to the import of a number of chemicals, in reply to which the petitioner received proforma invoice dated 18‑12‑1979 in regard to the said chemicals. Both the inquiry showed the price of Ethanol G,R as DM 5.33 per litre. The petitioner obtained import licences dated 6‑10‑1980 and 28‑12‑1980. On 28‑11‑1980, the petitioner placed a firm order for the chemicals with the M/s. E. Merck. West Germany. On 29‑11‑1980, it opened letter of credit in favour of M/s. E. Merck.

On 3‑2‑1981 the letters of credit was extended to cover shipments upto 7‑6‑1981. and negotiation upto 20‑9‑1981. On 5‑3‑1981, M/s. E. Merck. West Germany, issued shipping invoice for the chemicals. The goods were shipped on 14‑5‑1981. On arrival of the consignment at Lahore, bill of entry Nos, 0692 was filed with the Customs on 23‑8‑1981.

3. The Customs Authorities objected to the release of Sodium Carbonate and Ethanol G.R. and asked the petitioner to produce release advice from the Chief Controller of Imports and Exports. The said officer, however, declined to issue release instructions, whereupon the petitioner approached the Ministry of Commerce, Government of Pakistan, who issued release instructions as per their letter dated 18‑2‑1982 on the ground that these chemicals were "to be used for analytical/diagnostic purposes in the Laboratories." The Customs Authorities thereupon released the consignment on 14‑3‑1982, classifying Ethanol under P.C.T. heading 38.19. Out of this consignment, 800 litres were supplied to the Government Medical Stores Depot, Lahore, through petitioner's sister concern Seems Corporation. Lahore.

4. The Directorate of Vigilance of Customs, Lahore, seized some quantity of Ethanol G.R. from the Government Medical Stores Depot, Lahore, on 15‑9‑1983 issued a show‑cause notice to the petitioner and its sister concern Messrs Seems Corporation, Lahore, alleging 0) that import of Ethanol G.R. was banned (ii) that customs duty was livable tit the rate of Rs.132 per litre plus 40 per cent ad Valero and sales tax at the rate of 10 per cent under P.T.C. Heading 22.08 and (iii) that the value of the goods was DM 9.75 per litre as against declared value of DM 5.33 per litre. The petitioner was asked to show cause why it should not be penalized under section 1560) 9,14, and 90 and section 157 of the Customs Act.

2. The petitioner submitted its reply to the show‑cause notice on 24‑11‑1983 wherein it pleaded that the goods had been released under the instructions of the Ministry of Commerce, that classification under P.C.T. heading 22,08 was for Ethanol G.R. which was used in pharmaceutical products and not for Ethanol G.R. which was used as a reagent for analytical/diagnostic purposes, as observed in the letter of the Ministry of Commerce, and that the value of the goods declared by the petitioner was correct. As regards the value of the goods A was submitted that in the year 1978‑79 when the letter of credit was established, the price of one bottle was DIM 9.50, for six bottles it was 0M 8.45, for fifteen bottles it was OM 8.00 and for 144 bottles it was DNM 7.50. As 800 bottles had been imported in this case, the suppliers had ‑charged DM 5.33 per bottle giving a further reduction.

6. At the time of hearing before the Deputy Collector, Customs, besides emphasizing the above submissions, it was also submitted that the case could not be reopened by the learned Deputy Collector, Customs, and that only the Central Board of Revenue or the Collector had authority under section 195 of the Customs Act, 1969, to do so.

7. The learned Deputy Collector, Customs, by his order dated 3‑7‑1984, dropped the charge regarding contravention of I.T.C., changed the classification of the goods from P.C.T. heading 38.19 to P.C.T. heading 22.08 and determined the value of the goods at DM 9.75 per bottle, less 30 per cent as negotiable discount. Regarding objection about jurisdiction, the learned Deputy Collector observed that as no formal adjudication had taken place when the goods were released, section 195 of the Customs Act was not applicable. The petitioner was required to pay Rs .1,07,520 as differential customs duty, Rs.11,232 as differential sales tax and Rs.2,998 as Income‑tax.

8. Being aggrieved by the above order, the petitioner preferred an appeal before the Collector of Customs (Appeals) on 2‑8‑1982. Besides reiterating the above submissions, it was also‑urged that the demand of duty was barred by limitation under section 32 of the Customs Act, 1969, and that the reopening of the case under section 195 was without jurisdiction.

9. The Collector of Customs (Appeals) dismissed the appeal on 13‑10‑1985, but did not give any finding about the demand of duty being barred by limitation under section 32 of the Customs Act or about the reopening of the case under section 195 being without jurisdiction.

10. The petitioner filed a revision before the Government of Pakistan on 10‑11‑1985. The same was rejected on 25‑4‑1986.

11. Being aggrieved by the orders of respondents Nos. 1 to 3 stated above, the petitioner filed a constitutional petition against the same, which is now before me for disposal.

12. On behalf of the petitioner, a number of submission, have been made. First, that Ethanol G.R. falls under P.C.T. heading 38.19 and not P. C. T. heading 22.08. in this connection it is submitted that Ethanol means Ethyl alcohol and that the letter G.R." stand for guaranted' reagent and that the Ethanol G.R. which was imported was a reagent grade used in laboratories. It is contended that Ethanol may be of various kinds depending on its use, like Ethanol B.P., Ethanol C.P. , Ethanol Extra‑Pura, Ethanol G.R. etc., which are, used in medicines where special purity is required, where extra purity is required, where it is used for analytical applications etc. It is contended that Ethanol classified under P.C.T. heading 22.08 is that which is used in the preparation of medicines such as in depression or as an Anti Pyretic or as a Rube Faciant in linaments. It is contended that Ethanol G.R. is exclusively reagent grade used in laboratories it is lastly contended that the use of an article generally determines its classification, such as Peptone which is classified under P.C.T. heading 35.4, but when it'‑is used in cultured media in bacteriology, it is classified under. P.C.T. heading 38.16. It is contended that the Ministry of Commerce itself having released the goods as a reagent for analytical /diagnostic purposes in the laboratories, its classification clearly fell under P.C.T. heading 38.19 C 05. Lastly it is submitted that the licences which the petitioner received covered chemicals and reagent for analytical/ diagnostic purposes in the laboratories. Second, as regards the value of the goods, it is submitted that the price stated in the bill of entry was that which M/s. E. Merck, the exporter, had itself quoted in their Performa invoice dated 18‑12‑1979 and their shipping invoice dated 5‑3‑1981. it is submitted that M/s. E. Merck published their catalogues once every two years and that the Customs had assessed the value on the catalogue of 1980‑82, instead of that of 1978-79. It is further contended that prices mentioned in the catalogue are merely for invitations to offer and are negotiable. It is next contended that the catalogues of M/s. E. Merck showing their pricing policy for the years 1978-79, 1980-81 and 1981-82 were as follows:

Cat. Year

Price of 1 bott.

6 bott.

15 bott.

90 bott.

144 bott.

1982-83 DM

16.25

13.80

13.00

12.20

1980-81

13.00

11.05

10.40

9.75

1978-79

9.50

8.45

8.00

7.50

Note: - Prices for larger quantities are offered on application.

It is contended that since the letter of credit was established against pro forma invoice of 1979, the price contained in the catalogue of 1978‑79 is applicable. Relying upon the principle laid down by the Supreme Court in M/s. Eastern Rice Syndicate v. Central Board of Revenue (P L D 1959 S C 364), it is submitted that "normal price" worked out under the Customs Act is no measure upon which the guilt of an importer in respect of the making of untrue statements for the purposes of determination of Customs duty can at all be determined. Third, it is submitted that the reopening of the case under section 32 of the Customs Act, 1969, was barred, as the Customs Authorities did not at any stage hold that any declaration made by the petitioner in the bill of entry was false in any material particular to the knowledge of the petitioner. Fourth and last, it is submitted that the Deputy Collector of Customs having cleared the consignment on 14‑3‑1982 under P.C.T. heading 38.19, the case could not have been opened by the Deputy Collector in original jurisdiction, but only by the Central Board of Revenue or the Collector of Customs in Revisional jurisdiction under section 195 of the Customs Act, 1969.

13. On behalf of the Customs Authorities, it is submitted that Ethanol G.R. falls under P.C.T. heading 22.08. As regards the price, it is submitted that under section, 25 of the Customs Act, the value of imported goods is. the C & F price, exclusive of taxes, on the date on which the bill of entry is presented. Since the petitioner claimed the value on the basis of the pro forma invoice dated 18‑12‑1979, which was almost seventeen months earlier to the date . that the goods were shipped and almost eighteen months earlier whet, the bill of entry was filed, the Customs Authorities was within its rights to calculate the value according to section 25 of the Customs Act. With regard to the third objection it is submitted that the petitioner having deliberately made mis‑statement, both with regard to the classification and value in the bill of entry ,and the e same having been proved by documentary evidence which the Customs Authorities secured, the respondents were entitled to open the case under section 32 of the Customs Act. With regard to the last submission, it is contended that since no adjudication order had been made by the Deputy Collector of Customs under section 179 of the Customs Act on 14‑3‑1982, when the goods were originally released, section 195 did not apply.

14. 1 have heard the arguments of the learned counsel for the petitioner and the Customs Authorities and have also gone through the record. The first question that arises is whether Ethanol G.R. falls under P.C.T. heading 22.08 or 38.19. Chapter 22 of P.C.T. deals with BEVERAGES, SPIRITS AND VINEGAR. All the headings thereunder from 22.01 to 22.10 relate to all forms of liquids which are consumable such as water, aerated water, alcoholic beverages, except one which comprises a part of heading 22.08 i.e. denatured spirit (including Ethyl Alcohol and Neutral Spirits) of any strength. Un‑denatured ethyl alcohol or neutral spirit of a strength of 80 percent or higher is also consumable item, with addition of varying proportion of water. Chapter 38 deals with MISCELLANEOUS CHEMICAL PRODUCTS. Heading 38.19 deals with "Chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural produces), not elsewhere specified or included; residual products of the chemical or allied industries not elsewhere specified or included". Under this heading is listed the product C 05 "Composite diagnostic and laboratory reagents". It is obvious that what was imported was Ethanol (Ethyl Alcohol) G.R. The Performa Invoice and the shipping document of the exporter lists this product as "Ethanol (Ethyl Alcohol) Absolute G.R.11 The letters 11 G.R11 mean guaranteed reagent and the word 'Absolute' means strength of 99.9 per cent. It is obvious, therefore, that the Ethanol G.R. imported was of analysis grade, meant for use as an analytical/ diagnostic reagent in the laboratories. It cannot be denied that it is a product which is used for analytical purposes in the laboratories and also as a dehydrating reagent in the tissue processing of making slides for diagnostic purposes in the Pathological laboratories and is, therefore, a composite reagent. Scientifically there is no product which is a composite reagent. Any alcohol, acid, alkali is a reagent. The word "composite" in heading 39.08 C 05 is in terms of its use as both an analytical and a diagnostic reagent, i.e. a reagent that can be used for both the purposes. Ethyl alcohol is not listed in catalogues under the heading beverages, but in catalogues of Laboratory Chemicals/ Reagents. The import licences which were granted by the Government of Pakistan to cover the import of this product was also under the heading chemicals. The fact that the Ministry of Commerce ordered release of the said goods as chemicals, on the ground that it had to be used for analytical/diagnostic purposes in the laboratories is, therefore, not without meaning. The fact that the product was imported for supply to Government Medical Stores Depot., Lahore, for distribution to Pathological Laboratories, clinches the matter. The case of the Customs Authorities that the product falls under P.C.T. 22.08 does not make sense. Ethanol, G.R. at 99.9 per cent purity cannot be consumed by human beings, as it would be fatal. If Ethanol G.R. was an alcoholic beverage or an alcohol drink, it would not be catalogued under chemicals or reagents. Taking all circumstances into consideration, the product appears to fall clearly under P.C.T. heading 38.19 C 05.

5. With regard to the declared value of the goods, the price stated by the petitioner in its bill of entry at DM 7.50 per litre appears to be on the basis of the catalogue price of the exporter for the years 1978‑79 and the earlier proforma invoice issued to the petitioner on 18‑12‑1979. However, the petitioner himself placed a him order on 28‑11‑1980 and opened letter of credit on 29‑11‑1980, resulting In the shipment being made on 14‑5‑1981 and the bill of entry being filed by the petitioner with the Customs on 23‑ 8‑1981 Since a firm order was placed by the petitioner on 28‑11‑1980, the Customs Authorities were correct in relying upon the exporters catalogue for the year 1980‑81 by fixing the value of the product at

D M 9.75 per bottle, less a reduction of 30 percent to cover reduction in the price normally offered by an exporter for shipment of larger quantity. The Customs Authorities were within their rights under section 25 of the Customs Act to make such evaluation. No illegality appears in the said evaluation.

16. The only question that now arises is whether the petitioner was guilty of committing an offence under section 32 of the Customs Act. The first question that arises is whether the petitioner made a statement in the bill of entry as regards the value, knowing or having reason to believe that such statement was false in any material particular. The value of the goods is to be stated by the importer under the column "Import Value". The column does not state "Invoice Value". This is because under section 25 of the Customs Act the "normal" value is to be accepted. The Bill of Entry contains particulars are true, correct and complete", which has to be signed by the importer and his clearing agent. Both the importer and the agent are expected to know the law, for ignorance of law is no excuse. Section 25 of the Customs Act clearly states that the value of any imported goods shall be the price which they would fetch on the date referred to in section 30 on a sale in open market between a buyer and a seller independent of each other. Subsection (2) then prescribes the procedure how the price of the imported goods has to be determined. As held by the Supreme Court in Eastern Rice Syndicate's case (supra), the "normal" price worked out by the Customs Authorities under section 30 of the Customs Act by itself is no basis upon which the guilt of an importer in respect of the making of an untrue statement in the bill of entry can be determined, unless evidence is procured from the foreign country of export. In the instant case, firm order was placed by the petitioner with the exporter in November, 1980, yet he showed the valuation according to an earlier proforma invoice of 1979. According to inquiries made by the Valuation Branch from the exporter, the value of the goods according to the price catalogue of the exporter relative to the years 1980‑81 was DM 9.75 per bottle. The petitioner was also aware of the said catalogue pricing, as is apparent from the written statement filed by it before the Deputy Collector of Customs, Lahore, on 24‑11‑1983. In these circumstances, it cannot be doubted that the ‑petitioner, when it made the statement regarding the price in the bill of entry it did so knowing or having reason to believe that the same was false in material particulars. In this view of the matter, the Customs Authorities were correct in reopening the case under section 32(2) read with section 156(l) 14 of the Customs Act, 1969. This action could be taken independent of the provision of section 195 of the Customs Act, 1969, which had not to be invoked. See Aftab Hussain v. Co I Electoral (1987 P Cr. L J 1413).

17. The upshot of the above discussion is that though the petitioner correctly classified the goods under P.C.T. heading 38.19, it willfully assessed its value at a low figure. The Customs Authorities are, therefore, entitled to value the goods at D.M. 9.75 per bottle, less al reduction of 30% to cover the large order, and to realise import duty D under P.C. T. heading 38.19 and to claim short levy of customs duty, sales tax and income tax on the goods imported. The decision of the respondents in changing the P.C.T. classification is illegal and incorrect and is set aside. This petition is decided accordingly.

18. Consequent to this order, it any snort recovered duty and tax is still to be realised from the petitioner, the same may be so done. In case, the petitioner has already deposited the duty and taxes imposed on him, consequent to the impugned orders, whatever amount is refundable to the petitioner, as a result of this decision maintaining the earlier classification, should be refunded to the petitioner.

A.A. /R‑70/L Order accordingly.