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Customs Appeals Nos.497 and 498/LB of 2007, decided on 26th July, 2008.

----S.32(3A)---S.R.O. 436(I)/2001---Untrue statement, error, etc.---Deletion programme---Report of Engineering Development Board regarding short fall in achieving the indigenization---Show-cause notice was issued on the basis of information communicated by the Central Board of Revenue wherein the findings of Engineering Development Board regarding short fall in achieving the indigenization by the appellant was mentioned and demand was created---Appellant contended that evidence available with the department, Central Board of Revenue or the Engineering Development Board had not been shown and a case had been made out on the basis of letter of Central Board of Revenue in which information forwarded by the Engineering Development Board was communicated to the Collectorate---Evidence was required to be shown/furnished to appellant to enable him to defend the charges levelled in the show-cause notice---Validity---Charges levelled were based on information provided by the Engineering Development Board to the Central Board of Revenue which was communicated by the Central Board of Revenue to Collectorate of Customs and actual survey report containing discrepancies was not communicated to the Customs Department---Verification of information provided by the Engineering Development Board through Central Board of Revenue to Collectorate of Customs was not possible in absence of scrutiny of relevant record of the appellant---Appellant had full right to ask for the evidence which formed basis for the issuance of show-cause notice---There was need for scrutiny of relevant record before arriving at conclusion and demanding huge amount of duties and taxes from appellant---Relevant evidence regarding discrepancies had not been communicated to appellant to enable him to defend the charges---Order in appeal was set aside by the Appellate Tribunal and case was remanded to Collector (Appeals) for de novo consideration and fresh decision after affording opportunity of hearing to both the parties and scrutiny of relevant evidence collected by the Engineering Development Board, Central Board of Revenue and the Collectorate of Customs. Mian Abdul Ghaffar and Malik Muhammad Arshad for Appellant. Amir Haider, Appraiser for Respondent. Date of hearing: 1st July, 2008.

This appeal is directed against Order-in-Appeals Nos.139 to 140/07 passed by the learned Collector, Collectorate of Customs, Sales Tax and Federal Excise (Appeals) Lahore issued vide C. No. Coll(App) Cus/08/2007/3119, dated 25-10-2007, whereunder the appeal filed against Order-in-Original No.13/06 dated 26-12-2006 was dismissed. 2. Brief facts of the case are that the Central Board of Revenue issued final certificate C. No.1 (49)/S&R-2/93 dated 31-10-1995 and an approved Deletion Programme was issued by the Engineering Development Board (EDB) vide letter No. EDB-05/0372000 dated 23-1-2001 to Messrs Pak Hero Industries (Pvt.) Ltd., Lahore. On the basis of Deletion Programme issued by the Engineering Development Board and the certificate issued by the C.B.R., the appellant Messrs Pak Hero Industries Pvt. Limited Lahore was allowed importation of components etc. on concessionary duties in terms of S.R.O. 436(I)/2001 for the local manufacture of "Pak Hero 70cc Motorcycles". The unit started import of components on concessionary duties in terms of aforesaid notification. According to condition (iii) of the concessionary notification, the manufacturer was required to achieve minimum indigenization as approved by the Engineering Development Board and in case of default, the components imported in violation of indigenization programme would attract statutory rate of duty chargeable on the completely built up (CBU) vehicles and continuous availability of exemption under the notification was contingent upon the achievement of progressive indigenization. 3. The unit was surveyed by the team of Engineering Development Board and a shortfall was determined as 25% for the period 1-7-2002 to 31-3-2003 and 1.6926% for the period 1-4-2003 to 30-6-2003 as confirmed by the Engineering Development Board vide its letter No.EDB/005/03/03-265 dated 28-7-2003 communicated through C.B.R. letter C.No.2(16)/SUR-II/2000 dated 27-9-2003. Accordingly Messrs. Pak Hero Industries Pvt. Limited Lahore was served with a demand cum show-cause notice No. APR/04/Audit/03/29/252 dated 21-10-2004 by the Deputy Collector of Customs Dry Port, Lahore. On account of shortfall as reported by the Engineering Development Board and communicated by the C.B.R., a total recoverable amount of duty and taxes calculated to the tune of Rs.13,34,90,267 (at the CBU rate) i.e. @ of 105% customs duty Rs.9,35,08,643, 15% sales tax Rs.2,73,84,674 and income tax Rs.1,25,96,950 against import value of Rs.9,20,25,758 was determined. As a consequence of adjudication, the appellant was directed to pay Rs.2,46,66,204. The appellant feeling aggrieved with the Order-in-Original filed appeal before the learned Collector Customs, Sales Tax and Central Excise (Appeals) Lahore, who after considering the contentions of the parties upheld the Order-in-Original and dismissed the appeal against which the present appeal has been filed before this Tribunal under section 194-A of the Customs Act, 1969. 4. The main contentions of the learned counsel for the appellant were as under:--

(1) This appeal is being directed against Order-in-Appeal Nos.139-140/07 dated 25-10-07 passed by the learned Collector (Appeals) Lahore whereunder he rejected the appeal of the appellant and upheld the order passed by the learned Additional Collector Dry Port, Lahore adjudging the liability amounting to Rs.2,46,66,204. The main allegation against the appellant was that he could not achieve the deletion as per programme and there was shortfall of 25% for the period 1-7-2003 to 31-3-2003 and 1.6926% for the period 1-4-2003 to 30-6-2003 and as such the appellant should pay the adjudged amount of duties and taxes for failure to achieve deletion as per programme issued by the Engineering Development Board.

(2) Brief facts of the case are that the Central Board of Revenue Islamabad issued Final Certificate C.No.1(49)/S&R/2/93 dated 31-10-1995 and an approved Deletion Programme was issued by the Engineering Development Board (EDB) vide letter No.EDB-005/03/2000 dated 23-1-2001 aforesaid and the unit was allowed importation of components etc. on concessionary duties in terms of S.R.O. 436(I)/2001 for the local manufacture of "PH 7000 Motorcycles". The unit started import of components on concessionary duties in terms of aforesaid S.R.O. According to condition (iii) of the above referred S.R.O, the manufacturer is required to achieve minimum indigenization as approved by the Engineering Development Board and in case of default, the components imported in violation of indigenization programme would attract statutory rate of duty chargeable on relevant CBU vehicles and continuous availability of exemption of Notification is contingent upon the achievement of progressive annual indigenization.

(3) The unit was surveyed by the team of Engineering Development Board and a shortfall was determined as 25% for the period 1-7-2002 to 31-3-2003 and 1.6926% for the period 1-4-2003 to 30-6-2003 as confirmed on 28-7-2003 and communicated through C.B.R"s Letter C. No. 2(16) SUR-11/2000 dated 27-9-2003.

(4) Accordingly, Messrs Pak Hero Industries (Pvt.) Limited, Lahore was served upon with a Demand cum-show-cause notice vide No.APR/04/Audit/03/29/252 dated 21-10-2004 by the Deputy Collector of Customs, G-IV, Dry Port Mughalpura, Lahore under subsection 3(A) of section 32 of the Customs Act 1969. On account of said shortfall, a total recoverable amount of duty and taxes calculated to the tune of Rs.13,34,90,267 (at CBU rates) i.e. @ 105% Customs Duty Rs.9,35,08,643, 15% Sales Tax Rs.2,73,84,674 and income tax, Rs.1,25,96,950 against import value of Rs.9,20,25,758 were reported.

(5) The appellant submitted detailed reply to the show-cause notice rebutting therein all the allegations and stating that they had achieved the target and there was no shortfall at all and the report of Engineering Development Board was based on misunderstanding. However Order-in-Original was passed by the learned Additional Collector Customs without considering the contentions of appellant. The appeal filed against the Order-in-Original was also dismissed without addressing the points raised by the appellant.

(6) The allegation against the appellant was baseless and there was no shortfall in achieving the deletion programme. The request of the appellant to check the relevant record of appellant by the customs authority or the Engineering Development Board was not considered. The show-cause notice issued in the case was barred by limitation as prescribed under section 32(3-A) of the Customs Act, 1969 and as such the subsequent proceedings initiated on the basis of show-cause notice were a nullity in the eyes of law. In view of above no recovery could be effected after the expiry of limitation provided under the law.

(7) The appellant has maintained proper record which if audited would make the entire case crystal clear and also prove that the appellant has achieved the desired target of indigenization as per programme approved by the Engineering Development Board. It is, therefore, requested that, the impugned order may be set aside and the appeal may be accepted.

(8) During the course of hearing before this Tribunal, the learned counsel contended that a show-cause notice has been issued on the basis of the letter of C.B.R. through which the finding of Engineering Development Board regarding non achievement of deletion Programme was communicated to the Collectorate of Customs who without scrutiny of the record issued show-cause notice and the impugned orders were passed without considering the contentions of the appellant. The learned counsel contended that the survey report/findings of the Engineering Development Board are not available with the department and the entire case has been built up on the basis of a letter of the Engineering Development Board received in the C.B.R. which was communicated to the Collectorate of customs through a letter of C.B.R. The learned counsel further contended that the evidence against the appellant has not been so far shown to the appellant and huge liability has been created against an industrial unit which is not justified. The learned counsel contended that the evidence available with the department i.e. the detailed report of Engineering Development Board may be furnished to the appellant so that case may be defended properly. The learned counsel further contended that relevant record of the appellant is also required to be examined by the customs authorities for the determination of correct facts. The learned counsel was of the view that case has been made without any evidence and the impugned order needs to be set aside. 5. The respondents were represented by Mr. Ameer Haider, Appraiser who opposed the contentions of learned counsel for the appellant and contended that the appellant was required to achieve minimum indigenization as approved by the Engineering Development Board but they failed to do so. The learned D.R. further contended that the appellant was provided sufficient opportunity to defend the charges but he failed to produce any documents/evidence in support of his case. It was contended that the Engineering Development Board pointed out shortfall in achieving the indigenization programme but the appellant could not satisfy the authorities. Moreover, if he was dissatisfied with the report of Engineering Development Board then he should have approached the Engineering Development Board for re-survey of the unit. The learned D.R. further contended that no formal reply was submitted by the appellant. The learned D.R. stated that there is no merit in the appeal and the same may be dismissed. 6. We have heard the contentions of both the sides and perused the appeal file available before us. The learned counsel for the appellant contended that the deletion programme was followed in letter and spirit and the required percentage of deletion was achieved by the appellant. The learned counsel further contended that the Engineering Development Board has issued letter No.EDB/005/3/03-265 dated 28-7-2003 due to some mis-understanding and the C.B.R. communicated the findings of Engineering Development Board to the Collectorate vide C.B.R. letter C. No.2(16)SUR-II/2000 dated 27-9-2007 and a show-cause notice based on the information provided by the C.B.R. was issued without proper scrutiny of the relevant record of the appellant. The learned counsel further contended that the evidenced available with the department, C.B.R. or the Engineering Development Board has not been so far shown to the appellant and a case has been made out on the basis of letter of the C.B.R. in which information forwarded by the Engineering Development Board was communicated to the Collectorate. The learned counsel further contended that evidence against the appellant is required to be shown/furnished to the appellant to enable him to defend the charges levelled in the show-cause notice. The learned counsel contended that the order in original and the impugned order in appeal have been passed ignoring the demand of the appellant for furnishing the required survey report containing the discrepancies communicated by the Engineering Development Board to the Central Board of Revenue. The learned counsel categorically submitted that the deletion programme has been strictly followed by the appellant and there is no shortfall in the indigenization achieved by the appellant and all acts of the appellant were strictly in accordance with the deletion programme. The learned DA., however, opposed the contentions of the learned counsel. The learned D.R. was asked to produce the copy of the survey report of the Engineering Development Board containing the discrepancies committed by the appellant so that the same may be provided to the appellant to enable him to defend the charges as levelled in the show-cause notice. The learned D.R. stated that survey report of Engineering Development Board is not available with the department and show-cause notice was issued on the basis of information communicated by the C.B.R. wherein the findings of Engineering Development Board regarding shortfall in achieving the indigenization by the appellant was mentioned. We have carefully considered the contentions of both the sides and observed that the charges levelled against the appellant are based on the information provided by the Engineering Development Board to the Central Board of Revenue which was communicated by the C.B.R. to the Collectorate of Customs through letter C. No. 2(16)(SUR-II/2000 dated 27-9-2003 and actual survey report containing discrepancies was not communicated to the respondent. We have observed that verification of the information provided by the Engineering Development Board through C.B.R. to the Collectorate of Customs was not possible in the absence of scrutiny of the relevant record of the appellant. We have further observed that the appellant has full right to ask for the evidence which formed basis for the issuance of show-cause notice. In view of above position we are in agreement with the view that there is need for scrutiny of the relevant record before arriving at conclusion and demanding huge amount of duties and taxes from the appellant. It appears that the relevant evidence regarding discrepancies has not been communicated to the appellant to enable him to defend the charges. In view of above position the impugned order in appeal is set aside and the case is remanded to the learned Collector (Appeals) for de novo consideration and fresh decision after affording opportunity of hearing to both the parties and scrutiny of relevant evidence collected by the Engineering Development Board, C.B.R. and the Collectorate of Customs, Lahore. The Collector of Customs Lahore is directed to collect and examine the relevant survey report of EDB and also examine the relevant record of the appellant and submit his findings to the learned Collector Appeals. The learned Collector of Customs may seek the assistance of the Engineering Development Board and Central Board of Revenue for defending the case before the learned Collector Appeals. The respondents are directed to collect the relevant evidence against the unit from the concerned authorities and provide the same to the appellant within a month from the date of issuance of this judgment to enable him to defend the charges. The learned Collector (Appeals) is directed to decide the case within 90 days from the date of issuance of the judgment. 7. This judgment shall also apply to the following appeal case of the appellant being identical in nature:--

(1) Messrs. Pak Hero Industries Pvt. Limited, Lahore

(2) Customs Appeal No. 498/LB/07.

(3) Order-in-Appeal 139-140/07 passed by the Collector of Customs, Sales Tax and Federal Excise Appeals, Lahore.

(4) Order-in-Original No.18/06 passed by the learned Additional Collector of Customs. 8. These appeals stand disposed of as above. C.M.A./5/Tax/(Trib.) Order accordingly.

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