Scrutiny Over The Malpractices Of The Customs Department – Lahore High Court’s Verdict: An Instrumental Step Towards Uniformity!
In a judgment (recently approved for reporting as 2016 PCTLR 648 Lahore), the issue regarding customs valuation of imported goods was decided by the Divisional Bench of Lahore High Court. Appearing as counsel on behalf of one of the petitioners, M/S Zain Enterprises (the other petitioner was M/S Time Trading Co), I argued that the circulars issued by the Additional Collector regarding valuation of imported goods was not only illegal, but also without jurisdiction – the customs authorities did not have power to issue any circulars or notifications regarding the imposition of custom duty, nor could modify the method of valuation as that authority solely vested with the Federal Board of Revenue.
The issue in dispute was that the valuation of imported goods under the consolidated cargo procedure was being done on the ‘house airway bill’ wherever the freight unit was established in Islamabad, Karachi or Multan. But in Lahore, a discriminatory practice had been prevailing since 2012, where the valuation was taking place on the ‘master airway bill’, resulting in an imposition of duty on the importers three times more in comparison to the other airfreight units. I argued that this was confiscatory for the importers of Lahore. This discriminatory practice could be traced back to the year 2012, when an Additional Collector in Lahore issued a circular (impugned before the Divisional Bench of Lahore High Court) through which the method of valuation of imports was modified and the importers of Lahore had to pay three times more duty on the ‘master airway bill’, whereas the valuation of goods at other air freight units established in Islamabad, Karachi and Multan was taking place at ‘house airway bill’.
There is another aspect to this issue: the corrupt practices of customs officials. These customs officials issue circulars/notifications at their own discretion and modify the method of valuation of goods. They do so by exercising their arbitrary powers in order to exploit the importers and extract kickbacks or commission. I drew the attention of honorable judges to the fact that for the past twenty five years, the Lahore importers at the Lahore air freight unit were being valued at ‘house airway bill’ with uniformity at par with other air freight units established in Islamabad, Multan and Karachi. But since 2012, the Additional Customs Collector of Lahore, by issuing an unreasonable circular, changed the method of valuation for the Lahore air freight unit, which was arbitrary, discriminatory, exploitative, whimsical and contrary to the practice prevailing at other air freight units.
The counsel representing the Customs Department, relied on section 25A of the Customs Act 1969 which reads as follows:
“25A. Power to determine the customs value.—
(1) Notwithstanding the provisions contained in section 25, the Collector of Customs on his own motion, or the Director of Customs Valuation on his own motion or on a reference made to him by any person or an officer of Customs, may determine the customs value of any goods or category of goods imported into or exported out of Pakistan, after following the methods laid down in section 25, whichever is applicable.
(2) The Customs value determined under sub-section (1) shall be the applicable customs value for assessment of the relevant imported or exported goods.
(3) In case of any conflict in the customs value determined under sub-section (1), the Director-General of Customs Valuation shall determine the applicable customs value.
(4) the customs value determined under sub-section (1) or, as the case may be, under sub-section (3), shall be applicable until and unless revised or rescinded by the competent authority.”
The counsel representing the Customs Department felt that the Additional Collector was vested with powers to issue circulars regarding the valuation of goods and the levy of customs duty.
Rebutting this, I argued that there was no provision in section 25A which stated that the Customs Department could issue circulars or notifications regarding valuation of goods. The authority to issue circulars or notifications with respect to the imposition of duty or the method of valuation of goods solely vested with the Federal Board of Revenue, as mentioned in section 223, which reads as follows:
“Officers of Customs to follow Board’s orders, etc. – All officers of customs and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board:
Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the appropriate officer of customs in the exercise of their quasi-judicial functions.”
There was a point of contention here as to whether the Additional Collector under section 25A of the Customs Act 1969 had the power to issue the circulars or was it is the Federal Board of Revenue under Section 223 of the Customs Act 1969 that could issue the circulars or notifications regarding customs valuation of goods for the purposes of levying of duty.
The Divisional Bench of the Lahore High Court finally decided in our favor that the Additional Collector could not circulate a valuation – the ruling was given under Section 25A of the Customs Act 1969 and was to have uniform application. Only the Federal Board of Revenue had power under Section 223 of the Customs Act 1969 to circulate orders, instructions and directions, which would be binding on all officers of Customs. The honorable judges not only set aside the previous judgment and allowed the appeal, they also declared the impugned circular issued by the Additional Collector illegal and decided that in case any dispute arose between an importer/exporter and a customs official regarding valuation, then the issue shall be resolved under section 25D of the Customs Act 1969, through the intervention of the Director General Valuation appointed by the federal government, and not by the customs collector. So from now on, customs officials have been barred from issuing circulars or notifications regarding the levy of duty or the valuation method of goods.
This is a crucial step and an important point of law decided by the honorable judges, clamping down the arbitrary exercise of powers by customs officials that had previously resulted in discrimination regarding the valuation of goods for the purpose of levying customs duty. Now the Federal Board of Revenue has decision-making powers and has the sole authority regarding issuance of circulars/notifications with respect to the valuation of goods for the purpose of levying customs duty which would be applicable with uniformity across all the airfreight units. Customs officials have been bereft of this power hereon. Hence this judgment is an instrumental step towards bringing uniformity across all the air freight units established in Pakistan.
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