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ISLAMABAD: The Directorate General of Customs Intelligence, in a recent action, blocked huge quantity of brand new steel items, in different consignments, which were declared to be “re-rollable scrap” causing huge loss to the national exchequer.

Documents available with Business Recorder revealed that the customs authorities in the FBR Headquarter; however, acted against the request of its intelligence directorate and ordered for the release of the goods citing past practice as the key reason for the release.

The Federal Board of Revenue (FBR) has directed the Directorate General of Investigation and Intelligence Customs, Karachi, to clear the consignment declared to be re-rollable scrap as per established practice of clearance of iron and steel scrap adopted by the customs administration since long.

According to industry sources, deliberate attempts have been made in connivance with the department to ensure continuation of deviant practices of misdeclaration of steel goods and this practice is resulting in revenue loss to the tune of billions.

The Customs I&I officer who took the bold decision was transferred within few days of his taking the step of blocking the goods, they added.

The directorate on credible information blocked a Goods Declaration, during December 2020, after being cleared and gate out by the MCC Appraisement and Facilitation-Port Muhammad Qasim, Karachi.

The re-examination of the goods by the staff of this Directorate in the presence of the representatives of the importers resulted in the recovery of different description of goods including items in brand new condition.

According to a clarification issued by the FBR, refer to the Directorate General of Investigation and Intelligence Customs, Karachi letter on the subject of clearance of consignments declared to be re-rollable scrap and clarity thereon.

The contents of the directorate mentioned letter and actions taken by the Director Intelligence Karachi are against the established practice of clearance of iron and steel scrap adopted by the customs administration since long.

This on the one hand created hardship to the industry in the form of demurrages and detentions, thereby, increasing the cost of doing business while on the other hand it is attempting to change the policy environment, which has been established through years of practice.

This has created uncertainty in the business climate which may be avoided at all costs.

According to the letter of the Directorate of Intelligence Customs, Karachi, it has been brought to the notice that clearance of various brand new items in consignments declared to be “re-rollable scrap” under PCT 7204.1010 and 7204.4910 cleared in same PCT are causing huge loss to the national exchequer and seriously hampering the potential of the clearance Collectorates.

This Directorate has blocked few more consignments at “gate out stage” and during re-examination by this Directorate, it has transpired that there exist major classification and interpretational issues regarding what actually qualifies to be “re-rollable scrap”.

It is the considered opinion of this Directorate that the Import Policy Order (IPO) is regulatory document that outlines the restrictions and procedural requirements associated with imports into Pakistan. It is by no means a glossary of definitions. The dimensions and criteria set down vide serial No 7(2) of Appendix-A of the IPO are prescriptive of “the scrap” that is and importable and certainly not the definition of re-rollable scrap (7204.1010. 7204.4910). It is therefore opined that in order to safeguard Pakistan against the import of old and used substandard building material and subsequent faulty construction a mandatory limit has been imposed on its dimensions at import stage. This opinion is further strengthened by the amendment in Section 27A of the Customs Act, 1969, allowing mutilation if goods are not imported in new condition. Otherwise they shall be classified and chargeable to leviable duty and taxes as new goods.

According to the contents of the letter, an analysis of clearances shows that any product or article of iron and steel, regardless of whether old or new, if it is within the dimensions stipulated for in the aforementioned serial of Appendix-A, are being treated as “re-rollable scrap”.

This view of the clearance Collectorate is further amplified by the comments furnished to the Board by MCC Port Muhammad Bin Qasim vide letter No Group-V-313-2020-PQ/413 dated 07-10-2020, (Annex-A), wherein they refer to “definition of re-rollable scrap as provided under serial No 7(2) of Appendix-A of the Import Policy Order 2016/2020”, whereas the IPO does not and cannot define any goods rather it can only define condition and aspect of importability.

Moreover, the chapter notes to chapter 72 of the Pakistan Customs Tariff and the explanatory notes to HS Code 7204 are crystal clear and vivid in this regard.

As per the notes of HS Code 7204 (A) Waste and Scrap, the heading covers waste and scrap of iron and steel as defined in Note 8 (a) to Section XV.

Note 8(a) states that the expression waste and scrap mean “metal waste and scrap from the manufacture or mechanical working metals and metal goods definitely not usable as such because of breakage cutting-up or other reasons”.

The explanatory notes A (l) and (2) further elaborate such waste and scrap and state that it is of a miscellaneous nature and generally takes the form of waste and scrap from the manufacture or mechanical working of iron and steel (e.g. crop ends, filings and turnings) and articles of iron and steel definitely not usable as such because of breakage, cutting-up, wear or other reasons. The directorate said it is exceedingly clear that in order to qualify as waste or scrap from the manufacture or mechanical working from iron and steel it would normally take smaller forms.

Contrary to this, the import practices and clearances show that all goods, imported in bulk to the tune of thousands of tonnes, which conform to the dimensions mentioned in serial No 7(2) of Appendix-A Of the IPO are being treated as re-rollable scrap regardless of whether they are semi-finished slabs of iron and steel or flat or long or round products of chapter 72 of Pakistan Customs Tariff.

Moreover, no attention is being awarded to the fact that note (2) categorically mentions “Articles of Iron and steel” which fall under chapter 73 of the Tariff, “Products” of chapter 72 like new steel bars, rods, wire rods, slabs, plates, coils etc of identical length, width, thickness, gauge are continuously being cleared as re-rollable scrap, whereas in light of note A (2) it should first qualify as an “Article” of iron and steel.

Further, the goods can never be classified by IPO, as IPO can only determine the aspect of importability.

It is an irony that brand new items in the same consignment are classified in two different PCT headings merely based on length.

Though the directorate checks certain consignments on specific information, yet keeping in view the flow of the imports, it is not possible for the directorate to stop, check and examine each and every such consignment, as primarily the MCCs are mandated for this.

Therefore, in the light of above facts and circumstances of the issue, the Board is requested to take cognizance of the anomalies in clearances of consignments declared/cleared as re-rollable scrap, whereby a colossal loss is being borne by the national exchequer and issue clear and elaborate guidelines to all MCCs for classification thereof, so as to avoid undue litigation and disputes, Directorate of Intelligence added.

Copyright Business Recorder, 2021

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