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TaxHelpline 2014/108
CUSTOMS APPELLATE TRIBUNAL, KARACHI
Customs Appeal No.K-461 of 2011, decided on 28th May, 2013. Date of hearing: 22nd
April, 2013
Isaac Ali Qazi for Appellant. Atif Aijaz (A.O.) for Respondents
Before Ch. Niamatullah, Chairman/Member Judicial-I, Ghulam Ahmed, Member
(Technical-II) and Muhammad Nadeem Qureshi, Member (Judicial-I)
Messrs VENUS PAKISTAN (PVT.) LTD
Vs.
ADDITIONAL COLLECTOR CUSTOMS PREVENTIVE, MCC CUSTOMS HOUSE
and another
ORDER GHULAM AHMED, MEMBER (TECHNICAL-II). ---This judgment will dispose of
Customs Appeal No. K-461/2011 filed by the appellant against Order-in-Appeals Nos. 5136
to 5140/2011 dated 1-4-2011 passed by the Collector of Customs (Appeals) Karachi.
2. Brief facts giving rise to the filing of this appeal are that Messrs ISAF/NATO Forces
deployed in Afghanistan imported 10003.430 M. Tons Low Sulphur Diesel which arrived at
Karachi Port per S.S. M.T "SORRELLE" IGM No.1051 dated 23-7-2010 Index No.01. The
consignee appointed Messrs New Pak Trading Company as their Customs Agent for
clearance of the subject goods from Customs and Messrs Venus Pakistan (Pvt.) Limited
Customs Agent Licence No.2527 as their carrier for its safe transportation in transit to
Afghanistan via Land Route in accordance with the procedure laid down by FBR vide CGO
No.06/2010 dated 20-8-2010. The appellant/carrier also produced NOC dated 6-8-2010 from
NLC Dry Port Keamari, Karachi for transportation of the subject cargo on 200 tank lorries.
The numbers of tanker lorry were subsequently increased from 200 to 230 tankers vide NOC
dated 16-9-2010. After assignment of free number 01 dated 17-8-2010 to GD (AT) filed vide
Machine No. KOIL 01 dated 4-8-2010 by Customs Agent Messrs New Pak Trading
Company and electronically out of charge from Customs, the appellant started lifting of
subject cargo from Customs Bonded Tanks Terminals of Messrs Karachi Bulk Storage and
Terminal (Pvt.) Limited and Messrs Panama Trading Company (Pvt.) Limited for its onward
transportation to Afghanistan w.e.f. 29-8-2010 after obtaining vehicle wise transportation
permits for the same from Customs Authorities in terms of aforementioned CGO. The
appellant has now informed that seven tanker lorries have either been attacked or met
accident within Pakistan territory while en-route to Afghanistan resultantly the cargo loaded
thereon was lost. Since the appellant/carrier was responsible for safe transportation of the
cargo and its onward delivery to ISAF/NATO forces in Kandhar (Afghanistan) against proper
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acknowledgement in terms of CGO 6/2010, he is therefore, directed to deposit Rs.9,107,853
recoverable as customs duty and other taxes on the goods admittedly lost by the appellant
within the Pakistan Territory within seven days from the receipt of this notice in the
Government treasury failing which penal action should be taken for violation of section 129
of the Customs Act, 1969 read with CGO 06/2010 punishable under clause 64 of section
156(i) ibid. The adjudicating officer ordered the appellant to deposit the amount of Rs.9,
107,853 and passed the Order-in-Original. No. 05/2010 (K-Oil Afghan) which is reproduced
as under:--
I have gone through the written reply furnished by the respondent's advocate, departmental
comments on the same and rejoinder filed by the advocate besides hearing verbal arguments
advanced during the course of hearing by both the parties. Role and responsibilities of
Customs Licensed carrier are clearly defined under Chapter XXII of Customs Rules, 2001
and Custom General Order (CGO) 12 of 2002 dated 15-6-2002 amended vide CG0.06/2010
dated 20-8-2010. The relevant Clauses of CGO are reproduced as under:-
Clause (f) (iv) The carrier shall be responsible and bound to carry the goods to its final
destination in Afghanistan without any delay and with utmost haste. The carrier shall also be
bound to deliver the goods at final destination within the prescribed time-limit, using the
transport route duly approved by the Collector, Model Customs Collectorate Preventive,
Custom House, Karachi. Any change in route by the Carrier should be notified and consent of
the Collectorate obtained in advance.
Clause (f) (vii) In case of non-delivery of cargo at final destination in Afghanistan to the
consignees within stipulated time or mis-appropriation of the same while en-route to
Afghanistan the carrier shall be responsible for payment of all leviable duty and other taxes
on the said goods besides penal action initiated against them under the relevant provisions of
Customs Act, 1969 and Sales Tax Act, 1990.
In view of the above explicit clauses of "Procedure for transportation of imported Bulk Cargo
for exclusive use of ISAF/NATO Forces in Afghanistan" notified vide CG0.12 of dated 15-6-
2002, amended vide CG0.06 of 2010 dated 20-8-2010 and acceptance of role and
responsibilities by the respondent carrier under the same, I, therefore, order and direct Messrs
Venus Pakistan Limited Customs Agent and Carrier License No.2527 to deposit the amount
of Rs. 9,107,853/= in Government Exchequer within 07 (seven) days of the issuance of this
order. They are also warned to be careful in future.
3. Being aggrieved and dissatisfied with the Order-in-Original No.5 of 2010 dated 24-12-
2010, the appellant filed an appeal before the Collector of Customs (Appeals) Karachi. The
learned Collector rejected the appeal vide Order-in-Appeals Nos.5136 to 5140/2011 dated 1-
4-2011 as under:-
I have thoroughly examined the entire case record and given very careful consideration to the
arguments advanced before me. It is an admitted position that the 10008.101 M. Tons of low
sulphure diesel involving duty/taxes to the tune of Rs.101.201 million, given in the custody
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of the appellant for delivery to NATO/ISAF forces in Afghanistan, had not been delivered at
the aforesaid destination and as per the provisions of law contained in sub-Para (vii) of Para
(f) of the CGO the above-mentioned amount of duty/taxes is chargeable from the appellant.
The above-mentioned provisions of law are reproduced as under for ease of reference:-
Sub-para (vii) of para (f) of the Customs General Order No. 06 of 2010
(f) (vii) In case of non-delivery of cargo at final destination in Afghanistan to the consignees
within stipulated time or mis-appropriation of the same while, enroute to Afghanistan the
carrier shall be responsible for payment of all leviable duty and other taxes on the said goods
besides penal action initiated against the under the relevant provisions of Customs Act, 1969
and Sales Tax Act 1990.
Thus, the letter in law is very clear to the effect that the appellant is liable to pay duty/taxes in
case of non-delivery or the cargo at the final destination and it is immaterial whether non-
delivery is causal by the act of nature or the act of the carrier.
At the time of removal of the goods for transportation to Afghanistan, the CGO was at the
draft stage and the appellant had submitted an undertaking to the effect that he would abide
by the provisions of the CGO in letter and spirit ·when issued. Obviously, the CGO had been
issued/drafted in consultation with the appellant and he was fully aware that consequence of
non-delivery of the cargo at the final destination, for any reason, would mean that he would
be charged leviable duty/ taxes. The relevant part of the undertaking dalcd 17-8-2010 is
reproduced below:-
UNDERTAKING DATED l7-5-2011
"In consideration of Collector of Customs, Preventive, Custom House, Karachi allowing
loading and transportation of bulk liquid cargo imported for ISAF/NATO Forces in
Afghanistan. I, Rahel Zuberi son of Maj * M. Aslam Zuberi NIC No. 42301-0822674-5
resident of C-G, Marine Heights-II, Clifton Block 2, Karachi on behalf of Messrs Venus
Pakistan (Pvt.) Ltd., Karachi do hereby undertake that we will follow the outlined draft
procedure for transportation of imported liquid bulk cargo for exclusive use of ISAF/NATO
Forces in Afghanistan. Which has been forwarded to HlR vide Model Customs Collectorate
Preventive Custom House, Karachi's letter No. SS/Misc/08/201-Oil dated 10-8-2010 for final
approval and notification."
Subsequently, the appellant submitted a revolving insurance guarantee dated 24-8-2010,
issued by Messrs The United Insurance Co. of Pakistan Ltd, to the effect that any amount of
duty/taxes and/or penalty chargeable in respect of the lost goods/cargo shall be paid
forthwith. The relevant part of the aforesaid guarantee is reproduced as under:--
REVOLVING INSURANCE GUARANTEE DATED 24-1-2010
"Whereas in accordance with the draft procedure for transportation of liquid bulk cargo
imported for exclusive use of ISAF/NATO Forces in Afghanistan. Which has been forwarded
to FBR for approvals vide Model Custom Collectorate Preventive, Custom House, Karachi's
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letter No. S5/Misc/08/ 2010-0il, dated 10-8-2010 and the collector of Customs (Preventive),
Customs House, Karachi's permission for transportation of imported Liquid Bulk Cargo by
Carries Messrs Venus Pakistan (Pvt.) Ltd., 9/1, K-28, Hawksbay Road, P.A.F, Maripur,
Karachi, 111-836-871 licensed under Chapter XXII of Custom Rules 2001, pending approval
of procedure from FBR, we Messrs The United Insurance Co. of Pakistan Ltd., 5111 Floor,
Nizam Chambers, Shahrah-e-Fatima Jinnah, Lahore do hereby bind ourselves and our heirs
successors and assignees jointly and severely to pay to the Collector of Customs (Preventive)
any amount payable on goods (if lost, damaged, misappropriated within Pakistan territory
while enroute to Afghanistan) as Custom Duty, Sales Tax, Surcharge, Regulatory duty or any
other levy in the time in force in addition to fine and penalties which may be imposed by the
said collector for contravention of the conditions contained in the said draft procedure by the
said carrier as referred herein above."
The above-quoted letter of law, the undertaking submitted by the appellant in pursuance of
Pakistan make it absolutely clear that in case or non-delivery of the goods/cargo at the
destination, the duty/taxes involved on the same shall be paid by the carrier or the guarantor
and that the reason for non-delivery is immaterial. Therefore, the principle of force majeure is
not relevant in the context of goods/cargo taken over by the carriers for delivery to
NATO/ISAF Forces and particularly in the instant case. There is a rationale behind the
above-quoted provision of law that anyone undertaking such a huge business and making big
profits would have such cargo/goods insured and if the goods remain undelivered to the
NATO/ISAF Forces in Afghanistan for having been lost in Pakistan for any reason the
duty/taxes chargeable thereon would be made good to the Government of Pakistan and,
obviously, if the person undertaking to carry such goods does not bother to have the same
insured it is understood that he would pay the amount of duty/taxes on his own. Therefore,
the argument of appellant's counsel that since the control of the appellant and consequently
had not been delivered to the NATO/ISAF Forces, he should not be asked to pay the
duty/taxes chargeable thereon is untenable and the case-law quoted by him in this regard
(PLD 1978 Karachi 585. 1988 CLC 299 and PLD 1980 (sic) has been found to be irrelevant
to the facts and circumstances of the instant case. The principle of force majeure, referred to
by the learned counsel, is also not relevant to the instant case for a number of reasons: one, it
is not a contract between two private parties, instead it is a case of delivery of non-duty paid
goods, involving tens of millions of rupees in duty/taxes, into the custody of the appellant for
delivery to NATO/ISAF forces subject to specific conditions duly agreed upon by the
appellant and stipulated through the clear letter of law; two, the consequence of non-delivery
of the cargo/goods to the NATO/ISAF' Forces has been specifically mentioned in the
undertaking (reinforced by the revolving insurance guarantee) and that consequence is that in
case of non-delivery of the cargo at the final destination the appellant shall pay the duty/taxes
chargeable thereon. The reference to various provisions of the Customs Act, 1969 such as
sections 18, 27, 115 etc made by the learned counsel is equally irrelevant because transit
goods are governed by Chapter XIII (sections 126 to 129) of the Act and the rest of the
provisions of the Act become irrelevant in case of transit goods, as has been categorically
held by a Division Bench of the Honble High Court of Sindh at Karachi vide its judgment
dated 27-10-2010 in Constitutional Petition No. D-2410 of 2010. The learned counsel has
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also contended that since the NLC was the principal party, the duty/taxes chargeable on the
lost goods/ cargo should be charged from them. The aforesaid argument, too, is negated by
the specific provisions of law contained in Clauses (f) (iv) of the CGO which state that it is
the actual carrier (the appellant in this case) who shall be responsible to make good the
duty/taxes in such eventualities. The abovementioned provisions are also reproduced below
for ease of reference:-
Clauses (f) (iv) of CGO 06/2010
Clauses (f) (iv) The carrier shall be responsible; and bound to carry the goods to its final
destination in Afghanistan without any delay and with utmost haste. The carrier shall also be
bound to deliver the goods at final destination within the prescribed time-limit, using the
transport route duly approved by the Collector, Model Customs Collectorate Preventive,
Customs House Karachi. An change in route Carrier should be notified and consent of the
Collectorate obtained in advance.
The other objection raised by the learned counsel is that specific provisions/section of the Act
have not been quoted either in the show-cause notices or the impugned orders. This plea is
also belied by the evidence on record as well as the law by which such issues are governed.
In fact specific provisions of the CGO have been quoted and reproduced in the show-cause
notice as well as the impugned orders. Even otherwise, the superior courts of law have
repeatedly held (for example, the Hon'ble Supreme Court of Pakistan vide judgment dated 9-
12-2003 in Civil Petition No.775-K of 2003) that cases should be: decided on merit and not
on the basis of technicalities. In the case reported as PTCL 2007 CL 260, the Honourable
Supreme Court of Pakistan comprising four judges including the Hon'ble Chief Justice
Iftikhar Muhammad Chaudhry has specifically held that mention of a particular subsection of
law in the show-cause notice would not weaken the departmental case if offence committed
by the tax per has been communicated in reasonable details and substantial compliance of law
has been made. In the instant case, I observe that substantial compliance of law has been
made. Therefore, the technical issues raised by the learned counsel are ruled to be untenable.
I further observe that if the appellant or his guarantor does not make payment of the
Government revenue of Rs.101.201 million and the undertaking/ insurance guarantee is not
honored, strict action should be taken against them and the appellant should be stopped
forthwith to play havoc with Government revenue.
For the reasons explained above, I rule that the arguments advanced by the learned counsel,
reproduced at paras 3 and 5, do not find any support from the evidence on record and the
case-law quoted by him is not relevant to the facts and circumstances of the instant cases.
Consequently, I hold that the impugned orders are correct in law and on facts and there is no
reason to interfere with the same. The appeals are rejected accordingly.
4. Being aggrieved and dissatisfied with the Order-in-Appeal, the appellant filed the Instant
appeal before this Tribunal on the grounds as under:--
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(i) That impugned Order is erred both in law and facts, hence, not sustainable in the eyes of
law.
(ii) That entire proceedings against the appellant are without any lawful authority and legal
effect as no section of law has been invoked neither in the impugned Order-in-Original nor in
the Order-in-Appeal which authorize the adjudicating authority to demand duty and taxes on
goods in transit which have been destroyed either in war against terrorism or natural calamity
or in an accident beyond the control of human capacity, hence, the entire proceedings are
void ab initio for being coram non judice, arbitrary, thus, liable to be set aside.
(iii) That impugned Order of the learned Collector Appeals is not only based on conjecture
and surmises but also based on misapplication of the case-law of superior courts with mala
fide intention to sustain the impugned Order-in-Original which is without lawful authority.
(iv) That impugned Order is non-speaking as it remained sub silentio over the issues raised
by the appellant in reply to the Show-Cause Notice and appellant's rejoinder to the
Collectorate's para wise comments, hence, liable to be set aside on this score alone.
(v) That impugned Order is bad for non-joinder as National Logistics Cell (NLC) is a
necessary party to the cause, hence, impugned Order I show-cause notice are not sustainable
on this score.
(vi) That in the instant Show-Cause Notice, it has been alleged that out of seven (7) tankers
lorries 3 tankers (details as per attached list) involving amounting to Rs. 3,958,283 have been
completely ambushed.
(vii) That four (4) tankers (details as per attached list) apparently has been included
erroneously in the Annex-I of the Show-Cause Notice as the said vehicle has neither been am
bushed nor accidented rather decanted at its destination in Afghanistan without any hassle
and trouble. Therefore, the duty/taxes involving amounting to Rs.5,149,570 rating to the
aforesaid content are liable to be (sic) from the alleged demand amount.
(viii) That WITHOUT PREJUDICE to the merit of the cause of the Show-Cause Notice, the
duty and taxes involved in the two tankers i.e. Rs. 6,071,843 is liable to be deleted from the
alleged demanded amount of Rs. 73,270,021 being not covered by the cause of the Show-
Cause Noticed. Copies of 7 Trucks TPs/incident report/ police report(s)/Survey report etc. at
Annexure-XIV
(ix) The delay is at times is beyond the control of the respondent as there are lot of
uncertainties and due to danger en-route, the tankers remain stranded, otherwise once it has
been admitted that the tankers had reached to its destination safely and the delivery is
accepted by the consignee, the element of duty and taxes obviated. Attention is invited to
case of Messrs Blue Horizon reported in PTCL. Otherwise the delay which creates hardship
as in the instant case is condonable under section 224 of the Customs Act, 1969 and it is
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humbly requested that this cause may please be placed before the Collector Customs for
condonation.
(x) That cause of ambushed vehicles in terrorist attack cannot be made as a legitimate cause
for recovery as at first place it is out of the scope of CGO 6/ 2010, secondly, any attempt to
bring such cause within the purview of CGO 6/2010 would be hit by force majeure as
vehicles are victim in a declared WAR ON TERROR.
(xi) That it is humbly submitted that the aforesaid circumstances, Without Prejudice have not
only frustrated the obligations under the CGO but also created a force majeure situation
where after the appellant cannot be compelled to perform their obligation under the CGO.
(xii) That the aforesaid principle of law that is the frustration of agreement and force majeure
has been positively recognized by law, inter-alia, under section 56 of Contract Act, 1872.
(xiii) That now this principle has been recognized in the newly signed Afghan Transit Trade
Agreement, 2010. Article 28 ibid is quo tam verbatim:
"Article 28: Loss, Destruction, or shortage of the cargo en route.
When it is established to the satisfaction of the Customs Authorities that goods specified in
the Transit documents/GD have been destroyed or have been irretrievably lost by accident or
other unforeseen events en route or that they are short by reason of their nature, payment of
duties and taxes normally due, shall be waived."
(xiv) That it is well established principle of law that proclamation of war in an area by State
or States rendered the or agreement void as in the instant case the appellant could not be
asked to perform their part under the void agreement.
(xv) That here it is worth to add that primarily it is the duty of the State to safeguard the
citizens and their properties from the terrorists and miscreants and there are incidents where
the State came to the rescue of victims of terrorism and the victims had been aptly
compensated by the State, therefore, under the circumstances on no moral and legal ground
the State can be allowed to capitalize over the misfortune of the appellant Carrier agent
mainly caused by the failure of the State to protect them in a most imminent terrorist prone
areas such as en route to i.e. Torkham/Chaman Customs Stations situated Pak-Afghan
Border.
(xvi) That impugned Order, humbly submitted is highly misconceived in view of sub-para
(vii) of para (f) CGO 6/2010 which translate the liability of duty and taxes only to the
Appellant Carrier either in case of nondelivery of cargo to its final destination in Afghanistan
to the consignee or misappropriation of the same while en-route to Afghanistan whereas the
Show-Cause Notice/impugned Order, humbly submits does not carry any allegation of
misappropriation or cause of failure of nondelivery of cargo to final destination to
Afghanistan which is attributable to the appellant.
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(xvii) That there is only one instant which related to the carrier is that if in case en-route any
loss due to tampering or pilferage or theft occurred only then carrier could be responsible. In
the instant cases where the incidents have been promptly and duly reported to the local police
and to the concerned Collectorate within stipulated time, where after, no cause exist as
enumerated in the sub-para (i) of para (i) CGO 61/2010 to proceed with the impugned
demand.
(xviii) That WITHOUT PREJUDICE it is humbly submitted that the word "damage" used in
sub-para (i) of para (i) ibid cannot be taken into isolation or clothed with its neutral meaning
as it takes colour from its neighborhood such as the words "tampering" or "pilferage" or
"theft", therefore, it would take such damage which caused by any of the aforesaid modalities
or such cognatic expression as it a trite law that the meaning of doubtful words should be
interpreted by reference to the meaning of the word associated with it. Attention is invited to
the judgment in case titled Messrs Crescent Sugar Mills v. CIT Lahore reported as (1981) 43
Tax 1 (HC Lahore) and another judgment Messrs Kashmir Pottery Works reported as (1973)
28 Tax 172 (HC Lahore).
(xix) That it is humbly submitted that it is a trite law that no provision of the statute can be
read in isolation rather than to be taken as part of the whole scheme, therefore, any attempt of
reading the Clauses f (iv) and (vii) ibid in isolation would be violative of the law laid down
by the honorable superior courts in cases 2002 PTD 804 (HC Karachi) and 2002 PTD 2169
(HC Karachi).
(xx) That it is humbly submitted that Clauses f(iv) and (vii) ibid has the history behind its
introduction, therefore, its historical reason may be taken as an aid to construction of the
Clauses f(iv) and (vii) ibid as has been held by the honorable Karachi High Court in PLD
1979 Karachi 591.
(xxi) That WITHOUT PREJUDICE to the above, all the aforesaid rules quoted above have
been made under section 219 of the Customs Act, 1969 for carrying out the purposes of the
Act, therefore, being an agent under section 209 ibid, the replying agent is not liable for the
impugned demanded duties and taxes in view of the proviso to subsection (3) of section 209
ibid which reads as under:-
"Provided that where any duty is not levied or is short levied or erroneously refunded on
account of any reasons other than wilful act, negligence or default of the agent, such duty
shall not be recovered from the agent."
(xxii) That WITHOUT PREJUDICE to the above, many provisions of the parent law i.e. of
Customs Act 1969 such as 108, 110 and 115 ibid authorize the competent Customs officers
TO REMIT THE DUTY AND TAXES as in the instant case is where the POL products
which were being in transit under Bond when were destroyed.
(xxiii) That otherwise the loss caused by other than the specified causes in Clauses f (iv) and
(vii) ibid, the loss may be made good in accordance with the provisions of the Customs Act,
1969.
(xxiv) That as the cause is accidental and under the relevant law is condonable, if once
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arrived to the conclusion that the lost was caused by other than the specified instances in such
circumstances, the concerned customs authority which authority humbly submitted is under
legal obligation to order the remission of the duty and taxes.
(xxv) That WITHOUT PREJUDICE the learned adjudicating authority through
misinterpretation of section 129 of the Customs Act, 1969 gave a complete different artificial
meaning to section 129 of the Customs Act, 1969 to impose duty on the transit goods and as
such wrongfully assumed the jurisdiction and therefore, acted without lawful authority.
(xxvi) That WITHOUT PREJUDICE to the above, the duties and taxes can only be
demanded in case of goods in transit are found to be consumed within Pakistan for home
consumption.
(xxvii) That WITHOUT PREJUDICE that section/clauses of law in the Show-Cause
Notice/impugned Order are not attracted at all to the cause involved.
5. The respondent department has submitted Para-wise comments which are reproduced as
under:--
(i) The Order-in-Original was issued lawfully on the basis of factual position on record and
the appellant's objection regarding the non-sustainability thereof is without any merit.
(ii) The Order-in-Original dealt with the essential factual and legal position succinctly and it
has the legal effect as it had been issued under the relevant provisions of the Customs Act,
1969.
(iii) That National Logistic Cell (NLC) had duly issued a No Objection Certificate (NOC) in
favour of the appellants and for legal and practical purposes they were the carriers of transit
goods in question and liable for making good the loss of Customs duties and taxes in the
event of non-delivery of the impugned goods to its final destination in Afghanistan.
(iv) The carriers of goods meant for transit to Afghanistan including the appellants were fully
aware of the risks involved during their transportation in Pakistan. They have also complete
knowledge of their full liability in terms of the Customs law, including CGO 06 of 2010
involving their liability to pay the Customs duty and taxes in the event of non-delivery of
goods to the final destination to Afghanistan. It is one of the reasons that transportation
charges of such goods are much higher than the normal transportation cost of goods in
Pakistan. It is exclusive responsibility of the carriers to have a proper insurance cover in view
of the prevailing situation of law and order in the country. The terms force majeure usually
applies to contracts between private parties and it has no applicability whatsoever w.r.t. the
liability to pay duties and taxes which is an exaction by the state and only the Federal
Government is competent to provide exemption based on its public policy parameters. The
recovery of duty in terms of provisions of CGO had never been challenged by any carrier
until the issuance of this particular show-cause notice and it is only an excuse to evade their
responsibility in this regard.
(v) As stated above a force majeure argument only applies to contracts between the private
parties and it is usually mentioned as a separate clause in the contract signed between them
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and it cannot be invoked for non-payment of customs duties and taxes recoverable under the
Customs law.
(vi) The same comments as at paras-IV and V above.
(vii) The condition of war as mentioned in this para is an exaggeration. As stated above the
appellants are fully aware of the law and order situation in certain parts of the country and it
was their duty to exercise due care and discretion to protect the cargo assigned to them. In
fact nothing stopped them from obtaining a comprehensive insurance to safeguard their
interest in terms of the liability that devolved upon them under the CGO mentioned above.
(viii) Same comments as at para-VII above.
(ix) Sub-Para-(vii) of Para (f) of CGO 06/2010 clearly stipulates that in case of non-delivery
of cargo at final destination in Afghanistan to the consignee within the stipulated time, it will
be the responsibility of the carrier to pay all leviable duties and taxes. There can be no other
interpretation of this clause. The appellants are employing jugglery of words and phrases to
escape their liability.
(x) Para (i) (i) of CGO 061/2010 referred by the appellant reads as under:-
"In case of any tampering or pilferage or theft or damage caused en route, the carrier shall
inform the Model Customs Collectorate Preventive for necessary orders within three days
thereof. The carrier shall be responsible for the duties and loss or reduction in value as a
result of such damage notwithstanding any other action which may be taken under the law
and the rules made thereunder. "
This clause of CGO 06/2010 also put the responsibility on the Carriers for payment of duty
and other taxes leviable on the goods if the same are damaged/lost while enroute to
Afghanistan.
(xi) Same comments as above. The appellants are unnecessarily trying to use their defective
interpretation of the relevant provisions of Customs law/Rules to avoid payment of Customs
duties/taxes.
(xii) Same comments as above.
(xiii) The Carriers and all other stake holders are fully aware of the provisions of Rules in
question as well as the past history and they had never challenged the same. Needless to
mention that they also furnished an undertaking to the Customs to abide by the provisions of
these rules for the transportation of cargo to Afghanistan. Any other interpretation is only
opportunistic.
(xiv) The proviso of section 209 is being wrongly interpreted. This proviso refers to levying
of Customs duty on goods imported into Pakistan for home consumption and it has nothing to
do with the responsibility of carriers as regards the transit goods for which they have been
saddled the responsibility of safe transportation across Pakistan failing which they are liable
to make good Customs duties and taxes.
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(xv) Again these provisions apply to the warehoused goods in Pakistan and these have no
nexus with the transit goods meant for only temporary stay in Pakistan.
(xvi) The loss of duty and taxes on account of non-delivery of goods has to be made good
only by the carriers who need to duly insure themselves in view of the inherent risks involved
on this score.
(xvii) No provisions of Customs law provide for the condonation/ exemption of customs
duties on account of any accident and the plea of the appellant on this ground is untenable.
(xviii) Same comments as at para XIV above.
(xix) The Customs law/Rules have no such provisions w.r.t. the transit goods.
(xx &) The Show-Cause Notice, Order-in-Original and Order-in-Appeal are factually correct.
(xxi) There is no merit in the plea of the appellant as elaborated above. The appeal may,
therefore, be rejected.
6. We have examined the case record and heard the rival parties. The appellant has made out
the case that the impugned goods/Oil Tanker were destroyed by the terrorist attack which has
been occurred out side the Taurkhum Custom station. The Collector (Appeals) in the
impugned Order-in-Appeal has dwelled upon the provision of section 110 of the Customs
Act, 1969, and late submission of TPs and on the plea that any instructions of the FBR cannot
override the provisions of substantive law. The substantive law provides specific provisions
for exemption of duty on account of losses arising out of evaporization of volatile goods, and
a CGO cannot perform this function of charging such exempted duties or charging full duties
for late submission of TPs only. The FBR's instruction in shape of any subordinate legislation
if militate with the provisions of the Customs Act, 1969, or with quasi-judicial functions then
such instructions are not to be complied with according to proviso of section 223 of the
Customs Act, 1969, we therefore, assume that Collector Appeal acted as per law only. The
learned appellant raised the question about applicability of section 110 of the Customs Act,
1969, to the impugned case instead of application of provisions of CGO 12/2002. That there
is no denying the fact that CGO 12/2002 dated 15-6-2002 as amended by CGO 6/2010 dated
20-8-2010 and S.R.O. 450(I)/2001, dated 18-6-2001 hold accountable the carrier for any loss
en-route. Rule 566 of the Customs Rules embodied in S.R.O. 450(I)/2001 dated 18-6-2001
states as follows:- 566. Break down or accident en route. -- (1) In case of any tampering or
pilferage or theft or damage caused en route, the carrier shall inform the Collectorate of
Origination for necessary orders within three days thereof. The carrier shall be responsible for
the duties and taxes and loss or reduction in value as a result of such damage notwithstanding
any other action which may be taken under the law and the rules made thereunder.
7. That the CGO 12/2002 dated 15-6-2002 as amended by CGO 6/2010 dated 20-8-2010 also
depicts similar provision vide f(i)(vii). However, both these provisions envisage any
eventuality of "non-delivery of goods to consignee in Afghanistan" or "in case of tempering,
pilferage or theft or damage caused en-route" the carrier shall be responsible for duties/taxes
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of the lost goods. Whereas the impugned case neither falls in category of non-delivery of
goods on account tempering, pilferage, damage caused en-route nor breakdown nor accident
en-route, rather it is the case of well-designed terrorist attacks or explosions of underground
explosives designed to overturn the vehicle/tanker. Therefore such acts of sabotage/terrorism
are not ordinary accidents or damage. The parallel provisions to CGO 6/2010 are
incorporated in Rule 566. The provisions of CGO 6/2010 or Rule 566 instead to be read in
isolation, are to be read with Rules 567, 307 and 307A of the Customs Rules, 2001. Sub-rule
2(d) of Rule 307A where such incidents have been protected as if by virtue of certain
omissions and commissions and happening in natural due course, the goods as the instant
case goods destroyed or lost their marketability, duties and taxes are liable to be remitted.
Rule 566 or relevant provisions of CGO 6/2010 are of limited application which create a
liability on the Carrier only if en-route any tampering or pilferage or theft caused any damage
to the goods. Therefore, whether it is a Carrier or the exporter who is liable, the fact remain
the same that once the goods are destroyed with the plausible cause, duty and taxes cannot be
demanded. That careful reading of Rule 566 of S.R.O. 943(I)/2007 or para f(vii) and g(iii) of
CGO 6/2010 would suggest that no such demand can be directed towards the Carrier. That
there is one instance which related to the carrier is that if in case en-route may lose value due
to tampering or pilferage or theft occurred only then carrier would be responsible. In the
instant cases which have been duly reported to the local police to the Collectorate of
origination and so as to the exporter, no cause exists as enumerated in the CGO 6/2010 or
Rule 566. Therefore, the word "damage" used in CGO 6/2010 or Rule 566 ibid cannot be
taken into isolation or clothed with its neutral meaning as it takes colour from its
neighborhood such as the words "tampering" or "pilferage" or "theft", therefore, it would take
such damage which is caused by any of the aforesaid modalities or such cognatic expression
as it a trite law that the meaning of doubtful words should be interpreted by reference to the
meaning of the word associated with it. Our attention was invited to the judgment in case
titled Messrs Crescent Sugar Mills v. CIT Lahore reported as (1981) 49 Tax 1 (HS Lahore)
and another judgment Messrs Kashmir Pottry Works reported as (1973) 28 Tax 172 (HC
Lahore). It was submitted by the respondent that it is a principle of law that no provision of
the statue can be read in isolation rather than to be taken as part of the whole scheme,
therefore, any attempt of reading the Para. 25A, clause f(vii) or clause g(iii) or Rule 566 in
isolation would be violative of the law laid down by the honorable superior courts in cases
2002 PTD 804 (HC Karachi) and 2002 PTD 2169 (HC Karachi).
8. It was further argued by the appellant that all the aforesaid rules CGO 12/2002 amended by
CGO 6/2010 quoted above have been made under section 219 of the Customs Act, 1969, for
carrying out the purposes of the Act, therefore, being an agent under section 209 ibid, the
appellant agent was not liable for the impugned demanded duties and sales tax in view of the
proviso to subsection (3) of the section 209 ibid which reads as under:-
"Provided that where any duty is not levied or is short levied or erroneously refunded on
account of any reasons other than wilful act, negligence or default of the agent, such duty
shall not be recovered from the agent".
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9. The counsel for appellant made submission that the cause is accidental and under the
relevant law is condonable, therefore, the carrier cannot be held responsible for the duties and
taxes on the spoiled consignment and it is the obligation of the competent authority, if once
arrived to the conclusion that the loss was caused by other than the specified instances to take
up the matter with the customs authorities which are under legal obligation to order the
remission of the duty and taxes. The appellant carrier is not responsible for the loss of duties
and taxes on goods en-route to Afghanistan. Appellant emphasized that CGO 12/2002 as
amended by CGO 6/2010 create the impugned demand. It is not correct because it is clearly
mentioned there that in case of any tempering or pilferage or theft or damage the carrier
should be responsible for the duties and taxes on goods loss or reduction in value as a result
of such damage but it is case of none of those eventualities. Infact the tankers destined for
ISAF Kabul were attacked by terrorist and set ablaze or these tankers were fired upon
resulting in total loss of fuel being transported. The appellant has also stated instances of
hijacking of tankers and destruction by engineered accidents by planting IEDs on roadsides.
The appellant submitted that all these instances are not covered under CGO 06/2010 or Rule
566 of the Customs Rules, 2001 as these instruments provide no provisions to take
cognizance of such acts of terrorism which come under definition of "Force Majeure". The
consultant of the appellant submitted that loss of goods through such acts which result into
total destruction/loss of goods have been take cognizance of by sections 27, 108, 110 and 115
of the Customs Act, 1969, which provide for waiver of duty on such goods.
10. The issue raised by the appellant is about demand for payment of duty on the
consignment lost in terrorist attack, hijacking, fire and terrorist engineered accidents. The
appellant has claimed all these cases to be covered under "Force Majeure" as none of these
incidents was stoppable by the appellant.
11. The moot issues raised by the advocate for appellant during the hearing are as under:-
(i) That the burning of these containers by direct terrorist attacks or through explosion driven
designed accidents are the events which are neither in control of the appellant nor perhaps
under any effective control of government. Infact these are result of "force majeure". "The
force majeure means and includes but is not limited to any act of God, explosion, fire, flood,
drought or peril of sea or air, sabotage, embargo, commotion or war hostilities". It is an event
or effect that cannot be reasonably anticipated or controlled. Therefore terrorist attacks or
their engineered accidents are unforeseeable and irresistible and by and large these rendered
the appellant to fulfillment of his obligation as carrier absolutely impossible.
(ii) That the Rule cited by the appellant have been made under section 219 of the Customs
Act, 1969, for carrying out the purposes of the Act, therefore, being an agent under section
209 ibid, the appellant was not liable for the impugned demanded duties and sales tax in view
of the proviso to subsection (3) of the section 209 ibid which reads as under:-
"Provided that where any duty is not levied or is short levied or erroneously refunded on
account of any reasons other than wilful act, negligence or default of the agent, such duty
shall not be recovered from the agent".
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(iii) That many provisions of the parent law i.e. of Customs Act, 1969 such as sections 27,
108, 110 and 115 ibid authorize the competent Customs officers to remit the duty and taxes
as in the instant case where the POL products which were being exported under Bond when
they were destroyed en-route by terrorist attacks.
(iv) That as the cause is accidental and under the relevant law is condonable, therefore, the
carrier cannot be held responsible for the duties and taxes on the spoiled consignment and it
is the obligation of the competent authority, if once arrived to the conclusion that the loss was
caused by other than the specified instances to take up the matter with the customs authorities
which are under legal obligation to order the remission of the duty and taxes.
(v) The appellant (carrier) is not responsible for the loss of duties and taxes on goods en-route
to Afghanistan. Learned customs authorities emphasized that Rule 566 and Rule 564 of Rules
envisaged under S.R.O. 450(I)/2001 create the impugned demand. It is not correct because it
is clearly mentioned there that in case of any tempering or pilferage or theft or damage the
carrier should be responsible for the duties and taxes on goods loss or reduction in value as a
result of such damage but it is case of none of those eventualities.
(vi) That the provision of S.R.O. 450(I)/2001 reflects the responsibilities of carrier in case of
normal environment. These provisions in-fact do not cater the event of terrorist attacks or
terrorist engineered explosion drive accidents, hence these provisions are not applicable in
case of force majeure. The force majeure have usually three elements i.e. externality,
unpredictability and irresistibility. The terrorist attacks or their engineered accidents enshrine
all these three, hence are case of force majeure. The superior courts have ruled in many cases
that force majeure removes the liability for unavoidable catastrophe that interrupts the
expected course of events and restrict any part from fulfilling obligations. As a matter of fact
the terrorist attacks and terrorist engineered accidents are unexpected and disruptive events
that are not covered either by S.R.O. 450(I)/2001 dated 18-6-2001 (as amended by S.R.O.
943(I)/2007 dated 14-9-2007 and S.R.O. 90(I)/2008 dated 29th January 2008), hence, the
"responsibilities of carrier" legally shall not include payments of duties and taxes on
lost/burnt goods en-route to Afghanistan.
(vii) That the superior judicial fora has given many landmark decisions on the legal position
of the issue ruling that in case of terrorist attacks or accidents engineered by such attack the
normal application of legal provisions for routine and normal business shall not be applicable.
It is pertinent to mention that there are many precedents where on account of force majeure
FBR remitted duties and taxes on bonded goods. The loss of bonded goods by fire at Lahore
Dry Port was held as act of God/ force majeure and claim of duties and taxes on such goods
were withdrawn by FBR. There are many other precedents to this effect. The Honorable
Appellate Tribunal may give ruling that all containers lost in terrorist attacks or terrorist
engineered accidents shall not entail any liability of duties and taxes.
(viii) That a force majeure clause provided in international transport jurisprudence
particularly in famous US case Fairclough Dodd v Vantol, holds that there would be no
liability if a breach of contract was due to causes beyond the sellers control.
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(ix) That due diligence is another important factor to be considered in transportation of
goods. Article III of the Hague Visby Rules and Hague Rules require the carrier to exercise
"due diligence" before and at the beginning of the voyage to make the vessel seaworthy.
"Seaworthy" means that the vessel must be physically sound, she must have proper
equipment and supplies and efficient and sufficient manpower. The vessel must also be
"cargo worthy", that is completely fit and safe to receive, carry and protect the cargo. Before
the advent of the Rules, the common law obligation on the carrier was very strict and heavy.
That "due diligence" is not difficult to define. "Diligent" can mean that a person is attentive to
duties or uses persistent effort or work to achieve some objective. In surface transport,
therefore, it may mean that the carrier must be careful, reasonable and honest in his duty to
make the transport tanker road worthy. He should show reasonable and due care. However, it
seems clear that the duty for due care is only an "attempt". Because the obligation is not
absolute, if the carrier fails, for some reasonable cause, he may not be liable for a breach of
the obligation. If the obligation was "absolute" the carrier would be liable for any loss or
damage caused by un-road-worthiness irrespective of why or how or when the transport
tanker is alleged by the cargo interest to have been un-road-worthy.
(x) That the Law and Rules of transport stem from vessel transport jurisprudence and Hague
Rules and Hague Visby Rules. The Responsibility and Exemption is defined therein. The
owners only to be responsible for delay in delivery of the Vessel or for delay during the
currency of the Charter and for loss or damage to goods on board, if such delay or loss has
been caused by want of due diligence on the part of the owners or their Manager in making
the Vessel seaworthy and fitted for the voyage or any other personal act or omission or
default of the owners or their Manager. The owners not to be liable for loss or damage arising
from strikes, lock-outs or stoppage or restraint of labor (including the Master, Officers or
Crew) whether partial or general.
(xi) That the effect of such clauses in all the international rules is to protect the ship owner
and/or the charterer from liability should a breach of the charter party take place or a breach
occurs of any contractual obligation such as to carry a cargo safely under a bill of lading. An
exceptions clause can also cause one party's obligations to cease (come to an end) on the
happening of a certain event, for example, the' loading of a cargo. The "Cesser clause" has
this effect. A cesser clause reduces or removes some of the charterer's obligations after
loading has been completed.
(xii) That exception clause is also found in bills of lading. However, most carriage under a
bill of lading is subject to The Hague Rules or Hague-Visby Rules. In these Rules, Article IV
deals with exceptions of liability of the carries.
(xiii) That the operator of transport or vessel will not be held responsible if any accident is
caused by unforeseeable event or latent defect of transport. "Latent defect" can be defined as
"a defect which could not be discovered by a person of competent skill using ordinary care".
The exception from liability for latent defect is contained in Art. IV, R. 2(p): neither the
carrier nor the ship is responsible for loss or damage resulting from "Latent defects not
discoverable by due diligence". This is only a defect of the vessel itself and not of the cargo.
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A defect of the cargo would come under "inherent defect, quality or vice of the goods" in Art.
IV, R. 2(m) where the carrier is not responsible for loss or damage resulting from these
causes. The exception from liability for latent defects of the vessel is not in conflict with the
obligation in Art. III, R. 1 to exercise due diligence to provide a seaworthy vessel. However,
the obligation is on the carrier before and at the beginning of the voyage while the exception
could operate at any time.
(xiv) That in The Theodegmon case, 1989, the vessel loaded a cargo of oil in the River
Orinoco in ' Venezuela under a bill of lading which incorporated the U.S. Carriage of Goods
by Sea Act, 1936: This generally implements the Hague Rules. The exceptions to liability are
contained in section 4 of the Act as in Art. IV of the Hague-Visby Rules. After departure
from the loading berth, and while proceeding down-river, the vessel stranded. The cargo
interests suffered considerable financial loss and claimed this from the ship-owners on the
basis that the stranding and the financial loss were caused by the owners' breach of contract.
The judge concluded, from all the evidence before him that the vessel's steering gear had
failed, being on accident beyond control of operator, thus causing the vessel to fail to respond
to the river pilot's helm orders. In another case U.S. Court of Appeals also had to consider the
issue of cargo damage caused by alleged unseaworthiness. The vessel loaded wood pulp from
Chile to China. Clean bills of lading were issued. The wood pulp was improperly stowed,
according to the statements in the mate's receipts, but the bills of lading were not claused. On
the voyage the cargo caught fire. The vessel was not fitted with a fixed fire extinguishing
system using carbon dioxide. The crew partly flooded the hold in an attempt to extinguish the
fire. The cargo swelled, pushed open the hatch covers and the fire increased. Further flooding
was necessary. The cargo was mainly damaged by flooding. The District Court in the United
States held that the lack of a carbon dioxide fixed fire extinguishing system rendered the
vessel unseaworthy to carry wood pulp, a high risk cargo. However, the court also held that
the cargo interests were not able to prove that such a fixed system would have prevented the
need to flood the hold to control the fire. The carrier was held not liable.
(xv) That in road transport for transit between various countries is governed by TIR Rules
issued by TIR Commission of United Nations. The Article 41 of TIR depicts a waiver of
duties and taxes for the operator if transit goods are lost by accident or force majeure or any
plausible cause like evaporation of volatile substance inspite of exercising due diligence.
(xvi) That United Nations in document A/CN.4/315 (extract from year book of International
Law Commission) 1978, Vol.-II (1) depict characteristics of "force majeure" and "fortuitous
event" in state practice of various countries and international judicial decisions and doctrine
and elaborates force majeure" as follows:-
(a) Force majeure may be viewed as a mere event or occurrence, or as a legal concept. In
international relations, as in municipal law relations, the material causes giving rise to events
or occurrences termed force majeure may vary. Force majeure may certainly be due to a
natural disaster like an earthquake, but also to situations having their roots in human causes
such as a war, a revolution, mob violence etc. Moreover, certain causes that eventually may
give rise to force majeure may originate from natural as well as from human causes.
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(b) Events or occurrences amounting to force majeure prompted the different systems and
branches of municipal law to enact rules defining the rights and duties of their respective
legal subjects vis-à-vis such events or occurrences. This reaction of the legal order to force
majeure occurs also in international law. A series of primary rules of international law is
specifically intended to regulate events or occurrences due, wholly or partly, to force
majeure. An appropriate example may be found in the Agreement on Co-operation with
regard to Maritime Merchant Shipping, done at Budapest, on 3 December 1971, Article 11 of
which provides for assistance and facilities to be granted by the authorities of the territorial
State to a vessel, its crew, passengers and cargo in distress being victim of force majeure/
accident.
(xvii) That from the above it is clear that international carriage of goods by road governed by
convention on the contract for International Carriage of Goods by Road (CMR) or TIR
(International Convention on Road Transport) or (Transports Internationaux Routiers)
provide sufficient grounds for remittance/waiver of duties and taxes on consignment
lost/destroyed during transit between countries by reason of force majeure. These laws are
international laws and have precedence over national laws and rules. Therefore if
international law accepts that duties and taxes of lost consignments by force majeure will not
be responsibility of carrier then demands raised by the respondent are not tenable? The
Supreme Court of Philippine in case [G.R No.L-47822 Dec. 22, 1988 Pedro de Guzman v.
Court of Appeal] decided that carriers of goods are responsible for any loss or destruction of
goods unless same is due cause of force majeure or circumstance beyond coverage of due
diligence.
(xviii) That it is generally recognized that for "force majeure" the following requirements
should be met: (1) the event must be beyond the control of the obligor and not self-induced;
(2) the event must be unforeseen or foreseen but inevitable or irresistible; (3) the event must
make it impossible for the obligor to perform his obligation; (4) a causal effective connection
must exist between the event of force majeure, on the one hand, and the failure to fulfill the
obligation, on the other. The first of those requirements does not mean, however, that an
event or occurrence constituting force majeure must be absolutely external to the person and
the activities of the obligor. The essential element in a force majeure event is not whether the
acts or omissions involved are those of the obligor or external to him but rather the fact that
such acts or omissions cannot be attributed to him as a result of his own wilful behavior.
Concerning the second requirement, namely the unforeseen or foreseen but inevitable or
irresistible event, it should be stressed that it is sufficient if either of these two conditions is
met. The loss of cargo in the impugned case by the terrorist attacks meets all the above
requirements of force majeure.
12. We have observed legal reference mentioned supra and analyzed the issues in the light of
provisions of law. It is confirmed by the F.I.Rs. of terrorist cases that the fuel tankers were
either set ablaze by the terrorist or the fuel was lost due to damage of tanker on account of
firing or bomb explosion, engineered accidents by any act of force majeure. The force
majeure is "Infact these are result of "force majeure". "The force majeure means and includes
but is not limited to any act of God, explosion, fire, flood, drought or peril of sea or air,
THLN No.2014/108 APPELLATE TRIBUNAL-CUSTOMS
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sabotage, embargo, commotion or war hostilities". It is an event or effect that cannot be
reasonably anticipated or controlled. Therefore terrorist attacks or their engineered accidents
are unforeseeable and irresistible and by and large these rendered the appellant to fulfillment
of the obligation absolutely impossible. The record show that the terrorists' acts to destroy
fuel tanker destined for ISAF supply in Kabul were attempted by terrorists and such attacks
were neither controllable nor predictable by the appellant. Further such attacks were also not
resistible by the drivers or conductors of trucks. Therefore, these cases are well covered under
act of force majeure. The duties on goods destroyed by an act of force majeure are not
chargeable and this is reflected in many statutes of the world. The Customs Act of USA
(Code of Federal Regulations) vide sections §158.7, §158.21a, §158.27 and §158.41 such
duties are not chargeable and if such duties have been charged and goods were destroyed
thereafter even then such duties are refundable. The Customs Act, 1962 of India provide for
waiver of customs duties under section 23 of thereof. The Customs Act of Singapore provide
vide section 15(i) thereof as follows:--
"Remission of customs duty or excise duty on goods lost, damaged or destroyed before
removal from customs control
15.---(1) If any dutiable goods are by unavoidable accident lost, damaged or destroyed or are
lost through theft or through evaporation at any time before removal from customs control,
the Director-General may remit the whole or any part of the customs duty or excise duty
payable thereon".
13. Similarly, sections 27, 110, and 115 of the Customs Act, 1969, provide same relief. The
Customs Tribunal Islamabad in case vide Customs Appeal No.02-CU/IB/2011 dated 31-1-
2012 has already decided that duty on such cases where goods were lost, destroyed by the act
of God, which was beyond the competency of appellant to stop, are not chargeable. The
Indian Courts vide Cases No. [National Organic Chemical v. Commissioner of Customs
(imports)], [Bharat Petroleum v. Collector of Customs] have allowed waiver of duty on such
destroyed goods. Here it is worth to mention that Customs Act, 1969 has prime Rule that duty
and taxes are paid when goods are cleared for home consumption and recovery proceedings
are initiated in case where goods are removed for home consumption either without payment
of duty or less of leviable duty and taxes whereas in the instant case it is admitted position
goods lost have been destroyed and thus could not been put to human consumption and these
have been destroyed in unavoidable accidents. The expression "Unavoidable accident" is
defined in Black's Law Dictionary as "An inevitable accident; one which could not have been
fore-seen and prevented by using ordinary diligence, and resulting without fault. Not
necessarily an accident which it was physically impossible, in the nature of things, for the
person to have prevented, but one not occasioned in any degree, either remotely or directly,
by the want of such care or skill as the law holds every man bound to exercise. An accident
which could not be prevented by the exercise of ordinary care and prudence. A casualty
which occurs without negligence of either party and when all means which common
prudence suggests have been used to prevent it". The Black's Law Dictionary further defines
the expression "Unavoidable cause" as "A cause which reasonable prudent and careful men
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under like circumstances do not and would not ordinary anticipate, and whose effects, under
similar circumstances, they do not and would not ordinarily avoid". As the provisions of the
Customs Act, 1969 per se do not envisage to recover duty and taxes on goods proven to be
destroyed in unavoidable accidents such is the case of the instant appeal or fire or act of
terrorism etc. Thus, under the circumstances, where even the principal importer or exporter
cannot be held liable, the recovery of duties and taxes cannot be recovered from the
respondent Agent.
14. It goes without saying that customs duty (and allied taxes if any) is function of value of
goods. In case the goods are destroyed by terrorist act, or by any account, the value of
imported goods is diminished to that extent that no duty is chargeable on such goods. The
non-charging of duty on damaged, destroyed, lost goods is infact one of the facets of WTO
Valuation Agreement (Article VII of GATT). Many experts have deliberated the issue in their
research. "A Handbook on WTO Customs Valuation Agreement" by Sheri Rosenow, Brainj,
and O'shea vide Page 37 depicts as follows:--
"If some or all of a consignment is discovered prior to customs clearance to have been
completely destroyed is without commercial value. National Customs Rules often treat the
damaged goods as if they never arrived a "non importation". In that case, because the
destroyed or lost goods are not imported, the question of their customs value (an incidental
duty and taxes) does not arise"
15. The local or imported goods which are exported from Pakistan have to be governed under
section 25 of the Customs Act, 1969, for valuation. The Article VII of GATT (WTO
Valuation Agreement) remains the main source of legal pedestal. The WCO Explanatory
Notes 3.1 to Valuation in Customs Valuation Compendium vide page EN 3.1/1 reflect that
"the damaged goods upon importation; if the shipment is found totally damaged, then it has
no value". The valuation treatment for "damaged goods" vide page EN 3.1/2 depicts that
"there is no liability to duty". This principle to not levy any duty on totally damaged goods is
also reflected vide Standard 6 to Annex F.6 to the Kyoto Convention. The above bindings of
Article VII of GATT (WTO Valuation Agreement) the Explanatory Notes to Technical
Committee of WCO on Valuation, the Kyoto Convention are well reflected in customs law of
various countries. WTO, Committee on Valuation issued "information on implementation
and administration of the agreement on customs valuation" for India vide G/Val/N/2/IND/1
dated 15-7-2002, wherein the following question was posed to India "How has Article 1.2(b)
been implemented?". The reply of India as depicted in the above said document depict as
follows:-
Price of lost or damaged goods:
There are two provisions in the Customs Act, 1962 which provide for abatement/remission of
duty on damaged or deteriorated goods or goods that have been lost, destroyed or abandoned.
The relevant extracts of provisions are reproduced below:
"Section 22. Abatement of duty on damaged or deteriorated goods:
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(1) Where it is shown to the satisfaction of the Assistant Commissioner of customs or Deputy
Commissioner of Customs---
(a) that any imported goods had been damaged or had deteriorated at any time before or
during the unloading of the goods in India; or
(b) that any imported goods, other than warehoused goods, had been damaged at any time
after the unloading thereof in India but before their examination under section 17, on account
of any accident not due to any wilful act, negligence or default of the importer, his employee
or agent; or that any warehoused goods had been damaged at any time before clearance for
home consumption on account of any accident not due to any wilful act, negligence or default
of the owner, his employee or agent, such goods shall be chargeable to duty in accordance
with the provisions of subsection (2).
(2) The duty to be charged on the goods referred to in subsection (1) shall bear the same
proportion to the duty chargeable on the goods before the damage or deterioration which the
value of the damaged or deteriorated goods bears to the value of the goods before the damage
or deterioration."
"Section 23. Remission of duty on lost, destroyed or abandoned goods---
(1) Without prejudice to the provisions of section 13, where it is shown to the satisfaction of
the Assistant Commissioner of Customs or Deputy Commissioner of Customs that any
imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any
time before clearance for home consumption, the Assistant Commissioner of Customs or
Deputy Commissioner of Customs) shall remit the duty on such goods.
(2) The owner of any imported goods may, at any time before an order for clearance of goods
for home consumption under section 47 or an order for permitting the deposit of goods in a
warehouse under section 60 has been made, relinquish his title to the goods and thereupon he
shall not be liable to pay the duty thereon."
16. Similar provisions are available for charging no duty on account of diminished value of
imported goods on account of destruction, loss, theft in the customs statutes of Singapore,
USA, Canada and Pakistan. The Pakistan has to implement dictates of Technical Committee
of WCO on Valuation vide Explanatory No. 3.1 and Kyoto convention standard 6 to Annex
F.6, the instruments Agreements and Protocols to which Pakistan being member of WTO and
WCO is a signatory and under obligation to abide by them. Therefore, Customs Act, 1969,
reflect the provisions of sections 27, 110 and 115 to waive off the duty on account of
diminishing of value of imported goods on account of any reason including force majeure
while in bond or at stage of importation. Therefore, not charging duty and taxes for the
damaged/destroyed goods is on account of diminishing of value of such goods resulting from
terrorist attacks. This is the practice in all WCO and WTO members, who practice Article VII
THLN No.2014/108 APPELLATE TRIBUNAL-CUSTOMS
21
of GATT for Valuation of goods, and Pakistan is no exception to that. Besides the fact that
duty is function of value of goods and if value diminishes to zero, on account of damage or
destruction the rationale for charging the duty also fades away. The other factor for not
charging duty on destroyed consignment is element of force majeure, in shape of terrorist
attacks. In spite of due diligence, such events could neither be predicted nor stopped. The
force majeure also provide a legal ground for waiving off the duty on such consignments
which are lost en-route to ISAF owing to terrorist attacks. Reliance is also placed upon
Customs Appeal No.02-CU/IB/2011 dated 31-1-2012 title Venus Pakistan (Pvt.) Ltd., v.
Additional Collector Customs Rawalpindi, by the Customs Appellate Tribunal, Islamabad.
17. To what has been stated and discussed herein before particularly the interpretation of law
made under the purposed question of law and legal position referred to in the light of
prescribed law and international law and practices on the issues and to follow the ratio
decidendi in the Judgment of superior fora and rule of consistency, we uphold the appeal and
is allowed as no order to cost.
18. Order passed accordingly.
Note: The reader must study original text or certified true copy of the
case/judgment or visit official website of the courts.
However citations are as follow 2014 PTD 108.