The Association of Pakistan Motorcycle Assemblers (APMA) has urged Director General of Customs Valuation Karachi to declare the act of valuation department illegal which was issued on 26.03.2011 in terms of section 25A of the Customs Act 1969 and set aside, while the values of the applicant are to be determined in terms of section 25(1) of the Customs Act 1969 being true and correct transactional values, release the consignments under section 81of the Act, and direct the Department to assess the goods of the applicant strictly in terms of section 25(1) of the Customs Act 1969.
APMA filed its Review Application against Director of Valuation, Custom House Karachi in terms of Section 25D of the Customs Act 1969 against Valuation Ruling No 307 Dated 26.3.2011 in respect of Motorcycle Parts of Chinese Origin by OEM's (Published by MOBILE WORLD, April 2011 on page 31).
It said the Applicant is aggrieved and dissatisfied with the Valuation Ruling No 307 dated 26.3.2011 issued by the Director of Valuation in terms of section 25A of the Customs Act 1969. That the Applicant is a body of manufacturers of Motorcycles duly certified and approved by the Engineering Development Board (hereinafter referred to as "EDB") having in-house Assembling and Manufacturing facilities under many brands. It is submitted that the members of applicant imports various parts/components/kits for there production and manufacturing from China and is also using local components and parts under Tariff based System introduced by Govt. of Pakistan and EDB in the year 2006.
The members of applicant are situated in many cities of Pakistan and their imported materials are cleared at Karachi Port and many Dry Ports and the values declared were never disputed and were being accepted in terms of section 25(1) of the Customs Act 1969. It is also submitted that previously Valuation Rulings for some of the parts of Motorcycles dated 2.9.2006, 27.9.2006 & 2.2.2007 were in field which were issued on the complaint of Atlas Honda Limited, the Japanese brand manufacturer of motorcycles and a direct adversary and competitor of the applicant members as well as other manufacturers having know-how and expertise from China.
The said Rulings were challenged before the Honorable High Court of Sindh by some of the Importers which were thereafter set aside by the Honorable Court with directions to issue fresh ruling or determination of values in accordance with law. Thereafter another Ruling dated 13.11.2008 was issued in terms of section 25A of the Customs Act 1969.
The Ruling dated 13.11.2008 was further challenged in Review Application in terms of section 25D of the Customs Act 1969 and the learned DG Valuation was pleased to set aside the same in Review Application No 133/2008 dated 16.2.2009, in addition to fixation of values of 3 items. Thereafter another Valuation Advice dated 19.1.2010 and a Ruling No. 227 dated 26.2.2010 was also issued for various Motorcycle Parts.
In the meantime during 2009 and 2010, several consignments of the applicant members as well as of other Manufacturers of the same category were released by the Collectorates of customs in terms of section 81 of the Customs Act 1969 and the matter was referred to the Valuation department for finalization/ assistance.
The Valuation Department vide its Advice dated 01.4.2010 determined the prices of around 207 different parts and components and advised only the Hyderabad Collectorate to finalize the assessments of the pending cases on the basis of said Advice. Since the said Advice was issued without any valid or legal basis and even without any hearing to the aggrieved parties, a review application was filed before the Director General Valuations which was also dismissed vide order dated 30.8.2010.
Some of the applicant members and other stakeholders having left with no other option filed a complaint before the Federal Tax Ombudsman and the FTO vide order dated 21.12.2010 directed the department to expedite the issuance of Valuation Ruling in accordance with law.
Now the Valuation department has issued the impugned Ruling whereby the values have been again increased to a very high proportion which is totally against the law.
The necessary documents such as NTN, STR, PSQCA Licences, EDB certificate and import documents of some past Imports and the expected shipments are annexed for the perusal of this Directorate General of Valuation as previously review applications have been dismissed on technical grounds which has been time and again depreciated by the Honorable Supreme Court, and, further, after insertion of Article 10A in the Constitution of Pakistan, it is an inalienable right of every citizen to have a right of audience, when some adverse orders are being passed. It is further submitted, that even otherwise, if this Directorate feels that there is any further requirement of any documents or formalities, the applicant is ready to submit and fulfill all such requirements, wherever applicable.
Since the valuation Ruling issued is patently illegal, without any justification, arbitrary, discriminatory, completely against the law and in violation of the mandatory provisions of the Customs Act 1969 and the directions/interpretations of the Honorable Courts from time to time and hence the Applicant prefers this review application without prejudice to his right to contest the same before any other forum available in law, on the following grounds;-
GROUNDS
That at the outset it is submitted that the values determined by the Respondent vide impugned Ruling dated 26.3.2011 in terms of section 25A of the Customs Act 1969 refers and intends to apply the same on the importation of the applicant's previous consignments released in terms of section 81 of the Customs Act 1969 by the Hyderabad Collectorate in 2009 and 2010 and subsequently. This action is illegal, arbitrary, unjust, malafide and without jurisdiction as Valuation ruling has been issued by the Valuation department on 26.3.2011 and the applicant's consignments were imported and assessed prior to this and therefore the same is not applicable in view of the settled law that no retrospective applicability is permissible under any statutory provisions or sections of the Customs Act 1969 unless otherwise expressly permitted by the legislature.
Therefore at the outset the said Ruling is not applicable to finalize the pending cases of the applicant members in terms of section 81 of the Customs Act 1969. This submission is further strengthened by the interpretation given by the Honorable High Court of Sindh vide its judgment dated 5.3.2011 (before the issuance of the impugned Ruling wherein the Respondent was also a party) in CP No. 2673 of 2009 & Other related cases, and at Para 21 of the said judgment it has been categorically held that section 25A cannot have retrospective effect and Valuation Ruling cannot be issued in relation to goods actually imported nor it can be applied to imported goods unless it was issued before such importation. Hence, it is requested to direct the Hyderabad Collectorate not to apply the said Ruling on pending cases of assessments under section 81 of the Act ibid already made as they can only be assessed in terms of section 25 of the Act ibid, as they are in the process of issuing demand notices on the basis of said Ruling which otherwise is binding on all the Collectorate.
That even otherwise the said Ruling is in complete violation of the guidelines issued by the Honorable High Court of Sindh in above judgment dated 28.2.2011 in CP No. 2673 of 2009 & Others, wherein a number of Valuation Rulings have been found to be illegal under similar and identical circumstances and have been accordingly set aside and the Valuation Directorate has been directed to act in accordance with law while issuing the Rulings under section 25A of the Customs Act 1969. Therefore the said Ruling is also liable to be set aside on the touchstone of the said observations of the Honorable High Court.
That without prejudice to the above, it is submitted that in the impugned Ruling the input has been taken from Japanese brand Manufacturer of Motorcycles namely Atlas Honda and Suzuki, who in fact are the direct competitors and adversaries of the applicant members & others in business, and, further, there is no provision under the Customs Act and specially under section 25 of the Act, to take any assistance and rely upon their allegations and finding, which in the instant case is apparent in the finalization of the impugned ruling. It is further submitted that the Japanese manufacturers have lost a big market share to the applicant and other Manufacturers of Chinese technology and know-how, and, it is but natural, that their assistance to the Customs is prejudicial to the interest of the applicant and others. It is also pertinent to mention that the only reason of theirs losing the market share is the lower pricing of the Chinese makes, hence their assistance cannot be considered as valid and justified in the facts and circumstances of the case. Therefore on the basis of this the impugned ruling is liable to be set aside.
That the respondent has made a very vague and unfounded allegation in Para 2 of the Ruling by observing that values which are apparently grossly under invoiced could not be relied upon. It is submitted that never ever, any such allegation was either made against the applicant members and never ever any show cause notice or any other action was taken in respect of any kind of under invoicing. Therefore the respondent had no authority to make such a generalized allegation which is liable to be set aside.
Further in the same Para, it has been observed that rather fair values have been assessed by Customs and have accordingly been accepted by the Importers, in this context it is pertinent to mention that reliance on assessed values has no legal sanctity under the law and is also prohibited vide Rule 117(3) read with section 25(5) & (6) of the Customs Act 1969. It is also a settled law that there does not operate a Resjudicata against the law, and even if some of the Importers do accept the assessed values under circumstances beyond their control, the same cannot be made a valid or legal basis for future assessments.
That, without prejudice, it is submitted that while issuing the impugned Ruling the provisions of section 25(7) after a brief discussion have been ruled without any proper ascertainment and even without applying the same in conformity with the settled law. It is submitted that the OEM products are readily available in the market, and now after the introduction of Tariff Based System in the year 2006, after paying higher rates of duties under SRO 693/2006, the OEM products are permissible to be used in manufacturing after buying them locally from commercial Importers and hence it cannot be said that they are not available in the market to follow the deductive method.
The values, obtained after market survey, if any, have been rejected without any proper reasoning, and further even the deductive method of valuation was not properly carried out as it has to be carried out in each and every case and a general survey cannot be made basis of fixation of values as otherwise the same would be in total negation to the law declared by the Honorable High Court of Sindh vide judgment reported as Rehan Umer V/s Collector of Customs & others (2006 PTD 909) wherein the Honorable court at Para 18 of the judgment has held that…….for the foregoing reasons it is held that different methods of valuation provided in section 25 of the Customs Act 1969 and the Customs Rules 2001 are required to be applied in a sequential order and without visible exercise reflected on record no resort can be made to sub section (5) and likewise without similar exercise under sub section (5) no resort can be made to sub section (6). In the same manner without an exercise in writing on record under sub-section (7) and similarly to sub-sections (8) & (9). This exercise is to be made in each case separately. On the basis of exercise in the case of earlier imports by other importers it can not be applied to any subsequent import by another importer.
That in the same judgment another related question was also raised that whether an assessment can be made on the basis of working committee constituted for that purpose to adopt method under section 25(7) without associating the importer or his representative in each case, and the Honorable Court went on to hold that no assessment can be made on the basis of a working committee constituted for the propose of determining the deductive valuation under section 25(7) without associating importer or his representative in each case. Needless to submit that in this ruling while conducting the market surveys neither the importer nor his representative was ever called for. Therefore such values obtained after a market survey cannot be relied upon for assessment under section 25(7) of the Act ibid.
That, similarly neither the applicant nor any other stakeholder, including the suppliers were ever called for rendering any assistance in arriving at correct values in terms of section 25(8) (Computed method) of the Customs Act, hence, the rejection of this method is also without any basis. It is further submitted that in doing so, the input from the Manufacturer of the product being valued is mandatory, and without his assistance no value could be determined on the basis of computed valued method, and since no notice was ever issued to the Manufacturer of these parts, the rejection of this method is illegal and out of question.
That even otherwise, the impugned Ruling while determining the values under section 25(9) has not disclosed as to how these values were arrived at in terms of the fall back method, as again it is mandatory to disclose the same and hence the values so determined are illegal and against the provisions of section 25 itself and cannot be justified.
That all the products for which values have been determined in the impugned ruling, are mostly manufactured with raw materials whose prices are readily available on the LME (London Metal Exchange), and if conversion costs of maximum level are added to such prices of basic raw materials, even then, the prices determined are on the very higher side and cannot be justified under any situation. It is therefore submitted that such an exercise be carried out if fair values are to be determined. It is also pertinent to note that out of these various basic raw materials, values of most of them have also been determined in terms of section 25A of the Act by the respondent, and any input from that angle will also justify the contention of the applicant that the prices in the impugned ruling are not justified.
That values determined at Serial No. 24 to 34 are basically for hardware items and in one of the Ruling for High Tensile bolts and spring all sorts, the prices have been fixed @ USD 1.10/Kg, whereas in the impugned ruling the prices for the products which are much inferior in quality, the values have been determined as high as USD 56/Kg, which is absurd and not all justified under any situation. Therefore the impugned ruling is liable to be set aside on this ground as well. Similarly serial No. 35 & 36 are same items with only difference being inlet and outlet, however the values determined are again at a very big variance from USD 16.42 to USD 5.26 per KG. The same analogy prevails in serial Nos. 39 to 41 and 45 to 51 which makes the impugned ruling full of errors and contradictions.
That similarly, the values determined at Serial No 5 is exorbitantly higher at USD 96/KG which comes around USD 8/unit, whereas the best quality product is available in the local market for Rs70/- to 90/-, whereas the value determined in the ruling for only C&F is Rs700/-. Therefore the impugned ruling cannot be justified as the same has been issued at the behest of an outside agency which is a direct competitor of the applicant members and others and hence the same is liable to be set aside.
That it is also submitted that values of similar or identical parts with a difference of being left (L) and right (R ) have been determined with a very high variance which is again absurd and cannot be justified as the products are same in all aspects, but, values are different in the ruling. Therefore the impugned ruling has been issued without proper application of independent mind and hence the same cannot be relied upon.
That it is submitted that the prices of 51 items have been determined in the impugned ruling on kilogram basis and if weight of individual items is worked out it is a total of around 16 KG for all the 51 parts, which comes to around 19% of the total weight of a motorcycle which on the average is 86 KG. It is further submitted that the price of 1 motorcycle in China in CBU (Completely Built Unit) is USD220/unit to 235/unit at the maximum for which there have been determination of values by the Valuation Directorate, when these CBU motorcycles were being imported and is an admitted fact. Now if the total value component of the parts for which values have been determined in the impugned ruling is worked out, it comes to around USD92.00 which is around 40% of the total value of the motorcycle, whereas on weight basis it is around 19% of the total weight, therefore it is very clear that the values have been determined at least twice the actual values on the average weight basis. Hence, on the face of it, the impugned ruling is liable to be declared as illegal and not justifiable.
That it is also a matter of record that the values of Motor Car parts from Japan and China were determined vide Ruling dated 14.4.2008 which was superseded vide Ruling dated 29.5.2008 which was subsequently modified on the instructions of FBR to add a further 20% increase in values determined vide ruling dated 29.5.2008, the values of almost all the parts, whether they are body parts, engine parts or electrical parts, have been determined @USD1.50/KG plus 20% for Chinese origin. It could be seen that all the parts for which prices have been determined also notify the material from which they are manufactured, and for all these parts a uniform value per KG basis has been determined, which are much lesser than the prices for motorcycle parts for the same origin determined in the impugned ruling. This alone is an example of discrimination, illegality and undue favor and influence to the applicants competitor so that they can sell their Japanese brands are much higher prices, which has become difficult for them, after the introduction of Chinese brands which are admittedly cheaper in prices.
PRAYER
It is therefore, prayed by the Applicant above named that the Honorable Director General Valuation by virtue of powers vested under section 25D of the Customs Act 1969 may be pleased to pass orders as follows: -
Declare that the act of valuation department by issuing the subject Valuation Ruling dated 26.03.2011 in terms of section 25A of the Customs Act 1969 is illegal and is hereby set aside and the values of the applicant are to be determined in terms of section 25(1) of the Customs Act 1969 being true and correct transactional values;
Declare that the act of valuation department by issuing the subject Valuation Ruling dated 26.03.2011 in terms of section 25A of the Customs Act 1969 and its applicability on the applicant consignments released under section 81 of the Act ibid is illegal, unlawful and is alien to the provisions of section 25 of the Customs Act 1969 and hence liable to be set aside.
Declare that the action of Valuation Department by resorting to assessment in terms of sub section (9) of section 25 of the Customs Act 1969 directly without first exhausting the methods of assessment provided under sub section (1), (5), (6), (7) & (8) of section 25 of the Customs Act 1969, is illegal and liable to be set aside;
Direct the Department to assess the goods of the Applicant strictly in terms of section 25(1) of the Customs Act 1969.
And pending finalization of this Review Application direct the Hyderabad Dry port to assess the future consignments in terms of section 81 of the Act by depositing of post dated cheques for the differential amount;
And further, pending finalization of this Review Application direct the Hyderabad Dry Port and other Dry Ports not to enforce the recovery proceedings as the pending cases are being finalized on the advice of the Valuations Department after issuance of the impugned ruling. -MW
-Published on page#-21, May-2011 issue of MOBILE WORLD Magazine.
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