Customs Appeal No.344/LB of 2006, decided on 26th July, 2006. Versus Customs Appeal No.344/LB of 2006, decided on 26th July, 2006.

HAFIZ MUHAMMAD ANEES (MEMBER TECHNICAL).--- Impugned in this appeal C.A. No.344/LB of 2006 is the Order-in-Original No.136 of 2005, dated 20-4-2005 (dispatched on 29-7-2005) passed by the Deputy Collector of Customs (Adjudication) Lahore, whereby he ordered the appellant (the then respondent) to pay evaded amount of sales tax to the tune of Rs.1,55,925.

2. Briefly stated, the relevant facts giving rise to the filing of the above appeal are that during the course of audit of import record of Customs CFS, Thokar Niaz Baig, Lahore, it was observed that one Muhammad Saleem C/o Messrs Ehsan Woolen Spinning Mills, Boghiwal, Bund Road, Lahore imported consignment of old and used textile spinning machinery and filed Bill of Entry No. 5422, dated 25-6-1999 for its clearance through the clearing agent namely Messrs M & M International, Custom Clearing Agent, 4-McLeod Road, Lahore. The appellant was extended the benefit of S.R.O. 582(I)/98, dated 12-6-1998 being available to those who were registered under the Sales Tax Act, 1990 as manufacturer of taxable goods. The C.B.R. in its letter C. No.1/62-STT/98, dated 7-9-1998 clarified that for availing the benefit on imported plant and machinery under the said S.R.O. at the import stage the following conditions have to be satisfied:

(i) The importer should be registered under the Sales Tax Act, 1990 as manufacturer of sales taxable commodity.

(ii) The plant and machinery should be operated by power of any description.

3. On subsequent security, it was detected that the appellant was not registered person as manufacturer and thus violated the provisions of the said S.R.O. read with section 32(2) of the Customs Act, 1969 punishable under clause 14 of section 156(1) of the Act besides violation of sections 3, 6, 13(1), 14 of the Sales Tax Act, 1990. Therefore, the said amount i.e. Rs. 1,55,925 (sales tax Rs.1,48,500, income tax Rs.7425) fraudulently got evaded with the collusion of customs staff posted at Dryport, CFS Thokar Niaz Baig, Lahore, was recoverable under section 202 of the Customs Act, 1969 and under section 36(1) of the Sales Tax Act, 1990 along with additional tax under section 34 and penalty under section 33 ibid. The differential amount of income tax was also recoverable under section 50(5) of the Income Tax Ordinance, 1979. The appellant as well as the clearing agent were issued show-cause notice, dated 22-9-2004 for violation of the aforesaid provisions of law which was contested on various grounds. On adjudication the said amount was held to be recoverable. Besides, it was also concluded that penal action should also be taken against the clearing agent. The above appeal is directed against the aforesaid order- in-original, dated 20-4-2005 (dispatched on 29-7-2005), mainly on the following grounds:--

(1) The show-cause notice is barred by limitation, hence liable to be cancelled. Having admitted that show-cause notice was issued, almost three months after expiry of five years, the learned Deputy Collector (Adjudication) acted illegally in passing the impugned order.

(2) The adjudication order is barred by limitation under section 36(3) of the Sales Tax Act, 1990 well, hence liable to be cancelled. The show-cause notice is otherwise vague, non-speaking and is liable to be rejected.

On the other hand, the detecting agency has stated that it was the responsibility of the adjudication collectorate to issue show-cause notice on time. The detecting agency further stated that contravention report was issued on 29-7-2003 within the time provided under section 32(2) of the Customs Act, 1969 and section 36(1) of the Sales Tax, 1990. It was the responsibility of the adjudication collectorate to issue show-cause notice at the most by 26-6-2004 i.e. within five years from the date of the filing of the bill of entry. The Directorate of Inspection and Internal Audit has already raised this issue with the Collector (Adjudication) Lahore vide Letter C. No.7(3)DIA/Con/03/1818, dated 6-12-2004 and requested that responsibility may be fixed against the staff for deliberate delay/negligence in the issuance of the show-cause notice.

5. So far as merits of the case are concerned, the appellant (the then respondent) openly violated the conditions of S.R.O. 582(I)/98, dated 12-6-1998; the exemption claimed by the appellant was not admissible under the said S.R.O. as it was necessary for a person wishing to take the benefit of the aforesaid notification that he must have imported plant and machinery to be used for the manufacture of taxable goods by the registered person and on installation must produce taxable supplies. The appellant misused the concession by selling the plant and machinery instead of using it for producing taxable supplies thereby defeating the very provisions of the said S.R.O.

6. I have carefully gone through the record of the case: Also considered the arguments put forth by the counsel for the parties. The appellant's counsel has raised the point that the adjudication order passed by the learned Adjudicating Officer is barred by time-limitation in terms of section 179(3) of the Customs Act, 1969 read with section 36(3) of the Sales Tax Act, 1990. In this regard it is observed that the objection of the counsel for the appellant is devoid of force because the provisions are directory in nature and not mandatory. The consequences of non-observance of the provisos to subsection (3) of section 36 of the Act and subsection 3 of section 179 of the Customs Act, 1969 have not been given as compared to the provisions of section 79(4) of the earstwhile Income Tax Ordinance, 1979. As the consequences of non-observance of the above provisos have played down and the judgments of the superior Courts support the same, the objection is not maintainable in the eyes of law because delay in passing the judgment does not vitiate the proceedings. Moreover, no order can be scrapped or annulled or set aside, only on the ground that the same has been passed with un reasonable delay. Reliance is placed in the judgment of the Honourable Apex Court of Pakistan in the case titled as Assistant Collector of Customs AFU Airport, Lahore v. Messrs Tripple-M (Pvt.) Lahore and others reported as PLD 2006 SC 209 = 2006 PTD 769. As regards the other objection, it is observed that time limitation provided under section 32(2) of the Customs Act, 1969 and 36(1) of the Sales Tax Act; 1990 for recovery of evaded amount of customs duty/sales tax is five 'years under the afore-said provisions of law. In the instant case admittedly the show-cause notice has been issued after expiry of five years. Therefore, the same is barred by limitation and hence no recovery can be effected on this account. The Hon'ble Supreme Court of Pakistan in its judgment reported as 2006 PTD 271, held that the question of limitation being a matter of statute and the provisions thereof being mandatory, same could not be waived and even if waived could be taken up again by the party and even by the Court itself. In the case of Federation of Pakistan v. Messrs Ibrahim Textiles Mills Pvt. Limited reported in 1992 SCMR 1898, the Hon'ble Supreme Court of Pakistan was pleased to hold that service of notice within a prescribed time was mandatory and if that was not done the demand, like a time-barred money, suit would fail and the recovery would become unenforceable.

7. In view of the above position, the appeal filed by the appellant merits consideration on the above law point and is accordingly accepted. The order of the Deputy Collector (Adjudication) is set C aside.

8. Inform all concerned through registered post.

C.M.A./156/Tax (Trib.) Appeal accepted.