The Federal Tax Ombudsman former Justice Munir A. Sheikh has ruled that the Customs department cannot levy additional duty/tax because of its own failure to encash bank guarantees on time.
The FTO gave this ruling on a complaint filed by M/s Pak Telecom Mobile Limited, Islamabad against Assistant Collector of Customs, AFU, Karachi about a demand of Rs 29,84,054 which the complainant alleged as "illegal", contrary to law, etc.
Facts of the case are that the complainant imported 10 consignments of telecommunication equipment liable to 25 percent duty under customs tariff.
He 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 percent 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).
He 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 and the consignments were released on payment of 10 percent duty and 15 percent sales tax and the remaining duty and tax amount was secured by 10 separate bank guarantees.
The BOI sought 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 complainant approached the Customs department 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 percent per month amounting to Rs 29,85,054/- under section 83A of the Customs Act.
The complainant took the plea that section 83A of the Act 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 percent 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.
He said that 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. He said that the issuing banks made payment as and when demanded by the customs, therefore after depositing the bank guarantees the complainant was 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.
After examining the contentions of the complainant and the Customs Department, the FTO said that "it transpires from the facts that 10 consignments were allowed to be released provisionally by the CBR vide letter dated 01.01.2004 on payment of customs duty @ 10 percent 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"
He said that 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. He noted that it was significant that while nine bank guarantees were filed in March 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.
He said the Assistant Collector of Customs issued a demand-cum-show cause notice on 18.02.2006 requiring the importer to pay additional duty @ 1.5 percent per month under section 83A of the Customs Act 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", he pointed out.
The FTO said that it has been 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 therefore the delay cannot be attributed to the complainant as it was clearly occurred on account of maladministration on the part of the customs authorities.
The FTO asked the CBR to direct the Collector of Customs (Preventive) to (i) withdraw the notice within fifteen days; and (ii) investigate the reasons due to which abnormal delay took place in encashing the bank guarantees and take appropriate action against the officials responsible for maladministration.