The Federal Tax Ombudsman (FTO) Dr Muhammad Shoaib Suddle has recommended to the Federal Board of Revenue (FBR) to establish a separate Classification Directorate on the pattern of Valuation Directorate to make the classification rulings more effective, making their application binding on all Customs Stations in the country.
These findings were made by the FTO in a complaint against non-refund of additional amount of duties and taxes collected by the Peshawar Customs, because of alleged arbitrary classification of the Chrysler limousine under Pakistan Customs Tariff (PCT) heading 87.03. According to FTO's recommendations, the FBR should decide the matter of classification of the impugned vehicle, as per law and consider setting up a separate Classification Directorate, on the pattern of Valuation Directorate, to make the classification rulings more authoritative and binding for all Customs stations across Pakistan.
Alternatively, the classification disputes should also be entrusted to the Valuation Directorate. During the hearing, the authorised representative (AR) stated that the complainant imported the limousine and filed Goods Declaration (GD) dated November 1, 2011 at Peshawar Dry Port. However, instead of accepting the declared classification under Pakistan Customs Tariff (PCT) heading 87.02 (chargeable to 20% duty), the customs department arbitrarily determined its classification under PCT heading 87.03 chargeable to 100% customs duty and 50% regulatory duty. In so doing, the Customs disregarded the ruling of the Classification Committee, Karachi, issued vide CC-20/2011(A) dated 17.09.2011 and the recommendation of FTO Secretariat in complaint No 79/ISD/Cus(16)/818/2011 dated 13.12.2011.
The departmental representative (DR) stated that the Classification Committee's ruling was advisory and not mandatory. Moreover, the World Customs Organisation (WCO) had classified limousines under heading 87.03 of the Harmonised Commodity Description and Coding System (HS) as follows: "87.03 Motor cars and other motor vehicles principally designed for the transport of persons (other than those under heading 87.02), including station wagons and racing cars.... The heading also includes:
(i) Motor cars (eg limousines, taxis, sport cars and racing cars." According to the DR, the Customs General Order (CGO) No 12/2002 dated 15.06.2002 specifies the classification methodology vide Sr. No 22(b) of the table appended to paragraph 03 stipulating that luxury vehicles originally designed by the manufacturer for less than 10 seats (inclusive of the driver's seat) would be classified under heading 87.03. The departmental representative further contended that the complaint was hit by limitation of Section 9(2)(b) of the FTO Ordinance, 2000, as it involved a classification issue.
The complaint has been examined by the FTO in the light of the written and oral submissions of the parties. The classification heading 87.02 reads as follows:
"87.02 Motor Vehicles for the transport of ten or more persons, including the driver". This heading covers all motor vehicles designed for the transport of 10 persons or more (including the driver). A plain reading of PCT heading 87.02 and 87.03 indicates a lack of clarity in the two headings.
The FTO Office has already directed the FBR, being the final authority on classification, to remove this confusion through adding an appropriate amendment/explanation in the PCT Code, as three such cases have already been referred to the FTO Office, the FTO said. Though the matter of classification falls under Section 9(2) (b) of FTO Ordinance 2000, the issue the FTO Office is seized with lack of clarity under classification headings 87.02 and 87.03 leading to avoidable confusion/litigation.