In 2013, one of the country’s leading container terminal operators – Karachi International Container Terminal Limited (KICT), modified its fleet of cranes to enable them to be powered by a combination of diesel and electricity. The purpose of the modification was to conserve energy and reduce emissions.
KICT imported the required machinery and equipment from the Peoples’ Republic of China in several partial shipments and claimed concessions and exemptions from duties and taxes under the China-Pakistan Free Trade Agreement (FTA). Each shipment was accompanied by a certificate of origin from China.
Further, regarding some goods imported, KICT also claimed concessions under SRO 575(I) of 2006 (SRO 575), which applied inter alia to capital goods not manufactured in Pakistan for infrastructure sector projects. One of the conditions for eligibility of the concessions under SRO 575 was a certification from the Board of Investment (BOI), Government of Pakistan that the imported goods are bona fide required by the importer for a particular project. KICT applied for such certification well before the first shipment landed in Pakistan. However, the BOI issued the certification after some shipments had already arrived. KICT’s application was accompanied by a confirmation from the Engineering Development Board, Government of Pakistan, that the machinery and equipment for which the certification was sought from BOI were not manufactured locally.
After clearance of the imported goods, Pakistan Customs initiated post-clearance audit proceedings. They alleged that KICT was not entitled to the concessions and exemptions under the FTA because the certificate of origin did not cover all the goods in the shipment. Customs also took issue with the customs classifications of the imported goods declared at the time of clearance. Such classification was material for the goods’ eligibility for the benefits of the FTA. Further, though Customs did not raise any such allegation in the show cause notice, they found that shipments that arrived before the issuance of the BOI certificate were not eligible for concessions under SRO 575. Customs raised a substantial demand against KICT for duties and taxes on these bases.
We represented KICT in the Customs Appellate Tribunal in Karachi. During the proceedings, we demonstrated that even though the certificates of origin mentioned only one HS Code, and a generic collective description of the goods, on a contextual reading, they covered all the goods comprised in each shipment. We also argued that Customs could not have made an adverse finding based on a certificate of origin without first undertaking the procedure prescribed in the FTA for verifying the certificate of origin with the issuing authority in China. As to classification, though many of the goods of the nature imported had not previously been imported into Pakistan, we were able to satisfy the Tribunal on the appropriateness of the tariff headings proposed by KICT by referring to the Explanatory Notes to the Harmonized System published by the World Customs Organization. As to Customs deciding not to allow the benefit of concessions under SRO 575 to goods that arrived before the issuance of the BOI certification, in the first instance, we contended that Customs’ order could not properly have been premised on a finding which was not put forth to KICT in the show cause notice. Further, we argued that the BOI certification applied to all the goods imported in identical partial shipments rather than under any specific shipment. Therefore, the benefit of concessions under SRO 575 should not be withheld from earlier shipments due to BOI’s delay in issuing the certification.
The Tribunal allowed KICT’s appeals and overturned the orders made by Pakistan Customs and their demand for duties and taxes. Disputes relating to certificates of origin are often grounds for Customs to deny the benefits available under FTAs. The Tribunal’s authoritative judgments in KICT’s cases have developed the law on the principles applicable to interpreting certificates of origin issued under FTAs. Further, the judgments are also relevant to disputes relating to duty and tax concessions that continue to be given by the Government of Pakistan to goods not manufactured in Pakistan.
Dispute resolution partner Mayhar Mustafa Kazi led the team representing KICT in the Customs Appellate Tribunal.
For more information, call Mayhar Mustafa Kazi today.
