The Federal Tax Ombudsman has directed CBR to stop decades-old practice of 40 percent deduction of sales proceeds as rents, 5 percent surcharges as donation to Motamar-e-Alam-e-Islami, and calculation of duties and taxes on the bid price of the auctioned rather than the import value of the goods.
Justice Munir, who is a former Judge of the Supreme Court, while hearing a complaint of Impex Industries, discovered that the department had been making these deductions on the auctioned goods since long, without a proper statute, legislation or ordinance and lawful authority.
In its complaint, Impex Industries contended that following a decree, dated 10.09.05, by the competent court that it was the owner of the auctioned goods it approached the Customs Collectorate for refund of the proceeds of the auctioned goods, but the department failed to respond.
The complainant also argued that the goods were auctioned for Rs 63.988 million and after deduction of customs duty, sales tax, income tax, etc, Karachi Customs should have refunded Rs 28.431 million to it .
However, the department worked out the balance proceeds at Rs 1.39 million only--worked out after making deductions on account of surcharge of 5 percent for donation to Motamar and 40 percent share of the sale proceeds for payment to the person holding goods in custody (warehouse owner).
During the hearing, the FTO asked the CBR officials to give specific replies to the questions relating to calculation of duty and taxes on the auctioned price rather than the ITP/import price or value, the legality of levy of 5 percent surcharge for donation to Motamar and legal basis for deducting 40 percent of the sale proceeds for remission to the person holding the goods (warehouse owner).
Analysing CBR replies on the touchstone of law, the FTO said that "in so far as the liability of 5 percent surcharge for donation to Motamar (MAI) and deduction thereof from the sale proceeds was concerned, the CBR contended that the Board was competent in terms of section 4 of the Customs Act, 1969 to issue General and Special Orders and that was why 5 percent surcharge for donation to MAI was to be deducted from the sale proceeds in terms of CGO No 07 /79 dated 14.05.1979, the language of which was self-explanatory, and which was issued to give effect to the President order".
Section 4 of Customs Act 1969 lays down that an officer is competent to exercise powers and discharge duties as are conferred or imposed on him by or under Customs Act and the CBR may, by General or Special Order, impose such limitations or conditions on the exercise of such powers and discharge of such duties as it thinks fit.
The FTO observed: "It is not understood how Section 4 of the Act or the aforesaid CGO can be said to be the ''enabling provisions'' for levy of 5 percent surcharge.
"If the intention is to convey that CGO No 7/79 dated 14.05.1979 was issued by the CBR and the surcharge was being collected by the officers on the strength of this CGO, it begs a further question as to when and under what statute or legislation or enabling provision the surcharge in question was levied in the first place for which the GCO was issued to the Collectorate for its collection."
The FTO asked CBR officials to bring up enabling provisions in the Customs Act or a Statute, notification, ordinance or any other legislation whereby 5 percent surcharge was levied in the first instance before it was ordered to be collected as per CGO but they have failed to do so.
"No surcharge or levy can be collected unless it is levied under a specific Act, Statute or Ordinance or legislation" he pointed out.
He said that all that CGO No 7/79 says is that it has been decided by the government that 5 percent surcharge will be levied on all auctioned goods, but it does not disclose the enabling provision under which 5 percent surcharge was actually levied by the government for collection as directed by aforesaid CGO.
He said that the CBR officials have, therefore, not been able to provide the legal basis for levy of the 5 percent charge which cannot be collected from the sale proceeds in the absence of any enabling provision for its levy.
As to the question why duty and taxes had been worked on the bid price rather than ITP/Import value of the consignment at the time of import, the department explained that it in terms of section 201 , read with annexure -A of Standing Order No 16/01 dated 17.11.01 "the term sale proceeds is self-spoken that is why duty and taxes were calculated on the bid price" and further that actual sale proceeds are to be applied instead of any reference or indicative price..
The FTO observed that here again the department had failed to disclose the law under which duty and taxes are required to be levied on and deducted from the bid/auction price of the goods rather than on the declared ITP/import value of the consignment.
"Section 201 of the Customs Act 1969 does not envisage levy of duty and taxes on the bid price since the Standing Order cannot be a substitute for specific legislation on that account", he pointed out.
The FTO said that in the absence, therefore, of specific legislation providing for levy of duties and taxes on the bid price and its deduction from the sale proceeds rather than the declared value/import price the CBR cannot levy duty and taxes on the bid price and deduct the same from the sale proceeds.
He said that they should calculate duty and taxes on the declared import and assessable value of the consignment since they are supposed to recover only customs duty and other taxes that are payable to the Federal Government in respect of such goods as stipulated in sub section (2) (c) of section 201 of the Customs Act 1969.
As regards charging/deducting 40 percent of sale proceeds for remission to the person holding the goods in bond, the CBR officials have explained that 40 percent was deducted from the sale proceeds for payment to the person holding goods in custody in terms of Annexure - A of Standing Order No 16.01.
He pointed out that Section 201 of the Act does not prescribe this exorbitant rate and asked when was this rate of 40 percent prescribed and under what law? Just by saying that the rate is mentioned in Annexure A to the Standing Order does not help the department unless their contention is backed up by a legal sanction/legislation.
He said that the CBR had failed to explain whether the rate of 40 percent was agreed between the concerned parties as part of contract at the time the goods were warehoused that if the goods were auctioned, 40 percent would be deducted from the sale proceeds.
He said that in the absence of a legal basis fixing this rate and in the absence of a specific contract to that effect, 40 percent would be deducted from the sale proceeds was both illegal and unreasonable.
He said that the ends of justice would be met if the owner of the goods was asked to pay the rent for the entire period the goods remained warehoused rather than siphoning off 40 percent of the sale proceeds for payment to the person holding the goods.
THE FTO ADVISED THE CBR TO DETERMINE SUCH CASES OF REFUND OF BALANCE SALE PROCEEDS AS UNDER:
1. the duty and taxes should be calculated on the declared import value rather than the bid price of goods. The department may however levy the rates of duty and taxes applicable at the time the goods were moved out of the warehouse for auction.
2. 5 percent surcharge for donation to Motamar-e-Alame-Islami should not be levied and deducted from the sale proceeds because the department has failed to disclose the legal basis of the levy, as discussed above.
3. 40 percent of the sale proceeds should not be deducted from the balance of sale proceeds as the share of the person holding the goods in the absence of legal sanction/authority to levy the charge. Instead, normal warehouse rent should be charged from the concerned person/parties for the entire period the goods remained warehoused.
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