The Federal Tax Ombudsman, Justice Munir A Sheikh, has put to an end the controversy over the jurisdiction of Karachi Port Trust, which arose from the 'delay and detention certificate' issued by the Customs Department. This has reference to his ruling that KPT should not ask the importers to pay demurrage for wrongfully detained goods.
The issue before the Ombudsman was that a complainant had imported a consignment of wire rods and filed a Goods Declaration (GD) for clearance under PCT Heading 7213.9190 attracting customs duty at 10 percent. However, the Customs Appraisement Group insisted on classification of goods under PCT Heading 72312.9000, subject to custom duty at the rate of 20 percent.
Although it released 90 percent of the goods, detained 10 percent until the finalisation of the classification dispute. The Customs, therefore, sent samples of the goods for laboratory analysis, which upheld the declaration of goods by the importer for its clearance.
However, the time the laboratory analysis took saw the demurrage charges mounting to Rs 3,80,920, to the dismay of the importer, who obtained 'delay and detention certificate' from the Customs to take delivery of goods from KPT without paying demurrage charges.
But KPT refused to accept the certificate and forced the importer to pay the demurrage amount. For redress, the importer lodged a complaint with the FTO. At the hearing of the complaint, the counsel for KPT took the plea that the KPT, as a statutory organisation incorporated under KPT Act 1886 and functioning under the Ministry of Ports & Shipping, had no provision in its rules and regulations to accept the detention certificate issued by the Customs department.
Quoting relevant sections of the KPT Act 1886, dealing with the scale of rates and charges of KPT, he noted that while framing these, the old provision relating to delay and detention certificates was deleted by KPT.
On this ground he maintained that the KPT was neither an agent nor assignee of the Customs department, nor had it in any way contributed to the delay in the clearance of the consignment, for it was working under its own law and rules.
More to this, he argued that since the Customs department avails itself of port facilities it was supposed to pay the charges to KPT for services rendered. Referring to port charges, he argued that they did not constitute a 'tax', but charges for services rendered by KPT to the importer, thereby not falling within the jurisdiction of FTO.
Moreover, he said that the KPT charges its own dues and the Customs its own, as such, with the two working independently, the complainant should better claim the demurrage charges from the Customs Department.
However, in his verdict, the FTO observed that KPT detained goods at its premises, for or on behalf of the Customs authorities/Revenue Division, on account of non-payment of custom duty, or any tax, relating to Customs.
Otherwise, he noted, the KPT had no authority under its own law to disallow the importers to receive the goods as no dues of KPT itself had to be cleared. With these remarks, the FTO said that it was thus clear that KPT acted for and on behalf of Customs authorities in a matter relating to payment of custom duty, etc.
Thereby, the FTO concluded that KPT's legal status, in this context, became that of an assignee, or an agent, of the Customs authorities. Accordingly, he held that for this limited purpose, KPT was as much part of the Revenue Division as its principal was, for whom they were detaining the goods.
As such, the legal position was that by acting as agent of the Customs authorities in respect of detention of goods, KPT authorities were bound to act also on the directions and decisions of the Customs authorities, with regard to clearance of goods without payment of the amount of demurrage.
Moreover, the FTO also noted that since demurrage normally was payable by the importers in a case where detention was prolonged on account of non-payment of customs duty or other taxes due as such, it was in the nature of penalty on delayed payment of taxes, thereby becoming part of the tax.
At the same time he rejected the KPT argument that it could recover the amount of demurrage as charges for services rendered, for KPT was rendering services to the Customs authorities and not to the importers, whose goods were wrongfully detained, though no tax or custom duty was chargeable.
As such, the FTO advised KPT to settle the matter with the Customs authorities, on whose behalf it detained the goods, instructing them to refund the amount of demurrage charges of Rs 3,80,920 to the complainant. It will thus be viewed as yet another landmark verdict by the FTO.
It goes without saying that similar endings of tax and duty related disputes, often complicated by diverse interpretation of rules and laws by relevant tax officials or other concerned organisations, would, certainly, serve as reminders of much that is still left to be desired, in so far as smooth functioning of the taxation system, as envisaged by the all-out exercise in its reform and restructuring during the past several years is concerned.
This has reference not only to the predicament of the tax-collecting machinery in meeting the revenue targets, but also to avoidable delays caused in the settlement of disputes, often to the bewilderment of willing taxpayers too. That such inconsistencies have continued to be effectively addressed by FTO a matter of consolation.
Needless to point out, this should keep the hope alive in the purposefulness of the entire approach, thereby beckoning the authorities to make suitable changes in the rules and procedures, for the guidance of the relevant tax officials, and the other organisations concerned.
As earlier pointed out in these columns, the quandary, in this regard, is a sequel to changes in the taxation policies and procedures, with a marked emphasis on rationalisation from a seemingly taxpayer-friendly approach. As the FTO's rulings cover a wide range of traditional lapses, it will be in the fitness of things to keep track of the problems and put their solutions into use as precedents, as and when required. This, of course, can go a long way to bring to an end the flawed handling of the reformed system, which is hampering the desired progress on the tax front.
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