ISLAMABAD: The Islamabad High Court (IHC) restrained the Federal Board of Revenue (FBR) from taking coercive measures against the Pakistan International Airlines Corporation Limited (PIACL) for the recovery of surcharge on induction of three dry leased aircraft.
A single bench of IHC Justice Aamir Farooq heard the PIACL's writ petition. The PIACL has challenged the legality of the collection of Rs1,258,044,330, by the Customs authorities by way of customs duty, sales tax, and income tax. It has also challenged the Collector of Customs (Adjudication) order dated 09 June 2020 raising a penal demand of Rs84,120,240 under Section 83(2) of the Customs Act, 1969, on account of surcharge.
Anwar Kamal and Umer Vardag, represented the national carrier. The PIAC in 2013 inducted into its Fleet three aircraft on dry lease contracts for six years. The Economic Coordination Committee (ECC) of the Cabinet, on 17 December 2013 approved payment of taxes on leased aircraft on monthly installments.
The petitioner in view of the ECC decision paid Rs1,258,044,330 (Customs Duty at five percent, sales tax at 17 percent, and WHT at six percent) on three leased aircraft AP-BLC, AP-BLB, and AP-BLD on installments. Collector of Customs (Adjudication) on the basis of a Post Clearance Audit, Islamabad, report on 20 February 2020, issued a show cause notice to the petitioner. According to that "Surcharge" as per Section 83 (2) of the Customs Act, 1969, was not levied at the time of payment of duty and taxes.
It therefore alleged that Rs84,120,240, has been short-paid. Section 83(2) says; "Where the owner fails to pay import duty and other charges within [ten] days from the date on which the same have been assessed under sections 80 or 81, he shall be liable to pay surcharge at the rate of KIBOR plus three per cent per annum on import duty and other charges payable on such goods."
Anwar Kamal contended that penal action for the recovery of Rs84,120,240 by way of "Surcharge" was threatened to be taken "under Section 156(1)32(3A) of the Customs Act, 1969 for violation of Section 83(2) of the Customs Act, 1969."
He submitted that no charge was spelt out from the contents of the show-cause notice. He informed the court that the petitioner on 09 March 2020 filed a reply and denied the allegations contained in the show-cause notice.
He stated that the question of levy of "Surcharge" on the "failure" of the "owner" to pay duty and other charges within 10 days did not arise in the facts and circumstances of the case. According to the petitioner, Collector of Customs (Adjudication) Dr Muhammad Adnan on 09 May 2020 decided the matter.
He not only upheld the allegations made in the show cause notice but also demanded Rs84,120,240 surcharge. The petitioner's request for re-conciliation of payments was neither considered nor any effort made to determine the veracity of the audit observation by Post Clearance Audit (PCA).
He argued that the entire dealing relating to the charge and collection of customs duty, sales tax and income tax had been a "comedy of errors" based on misconception of facts and law. Under the law, there was no charge/levy of the customs duty, sales tax and advance income tax on the three dry leased aircrafts inducted by the petitioner.
The "illegal" superstructure of collection has no basis in a lawful levy of the duty and taxes. Anwar Kamal contended that an appeal to the Customs Appellate Tribunal constituted under Section 194-A of the Customs Act, 1969, does not provide adequate alternate relief as it would be a mere continuation of the original proceedings, which are beyond the scheme and scope of the Customs Act, 1969 as structured in 2013-2014, 2014-2015 and presently.
The appeal would also be "illusory" and "futile" as the jurisdiction of the Customs Appellate Tribunal is itself being challenged. He contended that during financial years 2013-14 and 2014-15, customs duty on aircraft imported into Pakistan on the basis of lease could not be charged/levied as the scheme of the Customs Act, 1969, as then and even currently structured, does not make provision for transactions based on arrangements other than sale/purchase of goods.
There is no provision for the determination of assessable value of leased aircraft, hence the Customs Act, 1969, could not be invoked and applied to the import of wet or dry leased aircraft inducted into the PIAC fleet. Anwar Kamal argued that the entire amount of customs duty, inadvertently, erroneously deposited/paid is liable to be refunded in terms of the applicable law.
During the financial years 2013-2014 and 2014-2015, sales tax could also not be charged on leased aircraft, whether wet or dry leased, as leasing arrangements did not fall within the definition of "supply" and were not covered by the charging Section 3 as there was no mechanism for determining the assessable value of goods imported on lease basis.
Therefore, the entire amount of sales tax deposited/paid inadvertently/erroneously is liable to be refunded in terms of the applicable law. The Collector of Customs could neither act as a collection agent nor collect advance tax (WHT) from the petitioner on the three dry leased aircraft AP-BLC, AP-BLB and AP-BLD, as the value of the goods could not be assessed under the provisions of the Customs Act, 1969, due to the various reasons existing in the law. The case was adjourned until 21st September.
Copyright Business Recorder, 2020
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