The Deputy Collector, Customs Multan vs The Customs Appellate Tribunal, etc.

Stereo. H C J D A-38.

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, MULTAN BENCH,

MULTAN

JUDICIAL DEPARTMENT

Customs Reference No.09 of 2026

The Deputy Collector, Collectorate of Customs (Enforcement), Multan

Versus

The Customs Appellate Tribunal, Single Bench-II, Lahore & others

JUDGMENT

Date of hearing: 06.10.2026.

Applicant by: Mr. Tahir Zia Mahar, Advocate.

Respondents by: Sardar Hafeez Ahmad Khan, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- Through the instant Reference Application under Section 196 of the Customs Act, 1969 (“the Act of 1969”), the following questions of law, stated to have arisen out of the impugned judgment dated 12.02.2026, passed by the learned Customs Appellate Tribunal, Single Bench-II, Lahore (“Appellate Tribunal”), have been pressed and argued for our opinion:-

1.Whether the ‘petroleum products’ constitute notified goods in terms of Section 2(s)(ii) of the Customs Act, 1969 read with serial number 21 of SRO 566(I)/2005 dated 06.06.2005, and their bringing into or taking out of Pakistan in breach of any prohibition or restriction for the time being in force including their carrying, transporting etc. constitute an offence of “smuggling”?

2.Whether after insertion of clause (ba) in Table (I) of SRO 499(I)/2009 dated 13.06.2009, the learned Customs Appellate Tribunal can release a vehicle unconditionally which was exclusively carrying goods falling u/s 2(s) of the Customs Act,

2.Briefly, on 12.08.2025, the Anti-Smuggling Organization, Multan, intercepted Hino Oil Tanker No.TLT-219 at Rest Area M-5,

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Multan, carrying approximately 40,000 litres of LAHS; the driver produced Sales Delivery Memo No.56499 dated 11.08.2025 issued by M/s ENAR Petroleum Refining Facility-II, Karachi, showing sale and dispatch of 40,000 litres of Solvent Oil to M/s Benzin Petroleum (Pvt.) Ltd., Islamabad, along with a Delivery Order for onward delivery to M/s Rabnawaz Industries (Pvt.) Ltd., Multan. The goods and vehicle were detained and samples were sent to the Chemical Examiner, Custom House, Karachi, whose Test Report No.CE/R/159/25 dated 18.08.2025 described the product as a mixture of aliphatic and aromatic hydrocarbons, essentially light aliphatic hydrocarbons. Notices under Section 26 of the Act were issued; M/s Rabnawaz Industries was stated to be defunct, M/s Benzin produced sales documents but did not produce Form-L/Form-C, whereas M/s ENAR verified the transaction documents. Nevertheless, the Department proceeded on the allegation that the product had entered the domestic market through unlawful channels in breach of the Customs Act and the petroleum regulatory framework. The learned Additional Collector of Customs (Adjudication), Faisalabad, vide Order-in-Original No.1442/2025 dated 28.11.2025, ordered outright confiscation of the goods and carrier vehicle, which order, on appeal, was set aside by the learned Appellate Tribunal, directing unconditional release on the ground that the Department had failed to establish the seized LAHS as smuggled goods and that alleged violations of domestic licensing and end-user requirements under the Petroleum Act, 1934 and the Petroleum Rules, 1937 did not, by themselves, constitute an offence under the Customs Act.

SUBMISSIONS

3.Learned counsel for the applicant-department submits that petroleum products are notified goods under SRO 566(I)/2005. He adds that Section 16 of the Act, read with the Import Policy Order, 2022 and the Petroleum Act, empowers Customs to act where restrictions governing petroleum are violated. He further submits that the respondents failed to produce Form-L/Form-C and that the

Customs Reference No.09 of 2026

transaction was suspicious because the alleged end-user was defunct. He further relies upon clause (ba) of SRO 499(I)/2009 and submits that the vehicle, being exclusively used for transporting the alleged smuggled goods, was liable to outright confiscation.

4.Conversely, learned counsel for respondents No.2 and 3 supports the impugned judgment and submits that the product was procured locally from M/s ENAR against contemporaneous sales tax documentation, which transaction was verified by the supplying refinery. He contends that the applicant-department failed to establish that the particular consignment was of foreign origin or had been unlawfully brought into Pakistan. He maintains that any violation of the Petroleum Act, 1934 or licensing conditions was separately cognizable under the petroleum regulatory regime and could not, without proof of smuggling, sustain confiscation under the Customs Act. 1969.

5.Arguments heard. Record perused.

SCOPE OF REFERENCE

6.The jurisdiction under Section 196 of the Act is confined to a question of law arising out of the order of the learned Appellate Tribunal. The Tribunal is the final fact-finding forum, and its findings are not open to re-appraisal merely because the Department seeks a different inference from the same evidence. Interference is warranted only where the findings are shown to be perverse, based on no evidence, or the result of material misreading or non-reading of evidence. The mere assertion that the Tribunal ignored material evidence does not, by itself, convert a factual controversy into a question of law.

QUESTION NO.1

7.The submission of the applicant-department proceeds on the premise that because petroleum products are notified goods under Section 2(s)(ii) read with SRO 566(I)/2005, their possession or transportation, whenever contrary to the petroleum regulatory regime, necessarily constitutes smuggling. This proposition is too broad.

Customs Reference No.09 of 2026

Notification of a category of goods brings such goods within the statutory definition where the other ingredients of Section 2(s) are satisfied; it does not, by itself, establish that every consignment of such goods is smuggled. The present Section 2(s) does contain a territorial limb concerning carrying, transporting and other specified forms of involvement within Pakistan. The question, therefore, is not simply whether the goods crossed an international border. The decisive question is whether the particular goods recovered in this case were established to fall within the statutory concept of “smuggle”.

8.The record, as noticed by the learned Appellate Tribunal, contained contemporaneous documents showing that the seized product had been dispatched from M/s ENAR Petroleum Refining Facility-II, Karachi. The supplying refinery subsequently verified the sale and dispatch in response to the Department’s own notice under Section 26. The Chemical Examiner confirmed the product as LAHS, but did not opine that it was of foreign origin. More importantly, the Department has not identified any direct or cogent evidence establishing that the seized 40,000 litres had entered Pakistan through an unauthorized route, had been substituted for an imported consignment, or represented non-duty-paid foreign-origin petroleum.

9.The department's case substantially rests upon the alleged defunct status of M/s Rabnawaz Industries, non-production of Form- L/Form-C by M/s Benzin and the alleged failure of M/s ENAR to clarify certain aspects of its licensing and source. These circumstances may justify regulatory inquiry, but they do not, without a connecting evidentiary link, establish that the particular consignment intercepted at Multan was smuggled. The distinction is material and was recognized in Messrs Gas and Oil Pakistan (Pvt.) Limited through General Manager Operations v. The Customs Appellate Tribunal, Karachi and 2 others (2018 PTD 917), wherein the learned Division Bench of the Hon’ble Sindh High Court observed that locally purchased petroleum could constitute smuggled goods where the

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circumstances satisfied Section 2(s), but that regulatory violations by a refinery, absent proof of smuggling by the persons proceeded against, were insufficient for confiscation under the Customs Act,

10.The reliance upon Section 187 of the Act does not improve the Department’s case. That provision places upon the person alleged to have committed an offence the burden of establishing lawful authority, permit, licence or prescribed document where that question arises. It does not dispense with the factual and legal foundation of the alleged Customs offence itself. Here, the respondents produced sales documentation connecting the consignment with the domestic refinery, and that refinery verified the transaction. Once such prima facie material was brought on record, the Department was required to establish why the particular consignment, notwithstanding those documents, was liable to be treated as smuggled. The record, as found by the learned Appellate Tribunal, does not disclose such proof. This approach finds further support from the judgment dated 20.11.2025, passed in Customs Reference No.35977 of 2025 titled Director, Directorate of Intelligence and Investigation v. M/s Qudrat Khan & Co. and 2 others, wherein a learned Division Bench of this Court, in a case concerning petroleum products, held that in the absence of specific allegations of smuggling confronted to the person proceeded against through the show-cause notice, the burden under Section 187 was not attracted. The Court further emphasized that the show-cause notice must contain the necessary factual allegations constituting the alleged Customs offence.

11.The reliance on the Petroleum Act, 1934 and the Petroleum Rules, 1937 also requires distinction between regulatory non- compliance and smuggling. The Rules relied upon by the department contain provisions governing importation, storage, licensing and dispatch of petroleum. A contravention of such requirements may attract action under the petroleum regulatory framework. A similar distinction was drawn by this Court in its judgment dated 20.11.2025,

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passed in Customs Reference No.35977 of 2025, wherein the Court found that the show-cause notice was substantially founded upon alleged violations of the Petroleum Act, 1934, the OGRA Ordinance, 2002 and the Petroleum Rules, 1937, while specific and requisite allegations constituting smuggling under the Customs Act had not been confronted to the person proceeded against. The Court consequently held that such regulatory allegations, without establishing the ingredients of smuggling, could not sustain confiscation under the Customs Act. Indeed, the Petroleum Act itself now separately provides for confiscation, by the appropriate Customs officers, of means of transportation involved in transporting smuggled petroleum products. That statutory language itself presupposes that the petroleum products have first been established to be “smuggled”.

12.The office memoranda relied upon by the department assigning Customs a role in “end-user verification” cannot enlarge the substantive definition of smuggling or independently create a power of confiscation. Administrative directions may facilitate coordination between statutory authorities, but they cannot convert a domestic licensing infraction into a Customs offence in the absence of the statutory ingredients thereof. The Department’s recourse, therefore, remains subject to proof that the goods proceeded against fall within the Customs confiscatory provisions.

13.The departmental case is further weakened by the inconsistency noticed by the learned Appellate Tribunal in the statutory basis of the proceedings. The seizure/show-cause proceedings invoked clause (90) of Section 156(1), whereas the adjudicating authority ultimately proceeded under clause (89), which pertains to smuggled goods. Where confiscation is founded upon a ground or statutory provision materially different from that put to the noticee, the requirement of fair notice is compromised. The principle that adjudication cannot travel beyond the substance of the show-cause notice is well established and was also recognized by the Hon’ble Supreme Court in The Collector Central Excise and Land Customs and others v. Rahm

Customs Reference No.09 of 2026

Din (1987 SCMR 1840), relied upon by the respondents before the learned Appellate Tribunal. The same principle was reaffirmed in the aforesaid judgment dated 20.11.2025 in Customs Reference No.35977 of 2025, wherein this Court held that the show-cause notice is the basic document for determining whether a case of smuggling has been made out and that adjudication must remain confined to the allegations specifically confronted to the person proceeded against.

14.In the circumstances, the question No.1 is answered in the negative, against the applicant-department and in favour of the respondents.

QUESTION NO.2

15.The second question is founded upon the premise that the vehicle was carrying goods falling within Section 2(s). That premise has not been established in the present case. The amended clause (ba) of SRO 499(I)/2009 provides a statutory bar to release of a lawfully registered conveyance where it is seized and found carrying smuggled goods. The Hon’ble Supreme Court has authoritatively held in Bashir Ahmad v. Director, Directorate of Intelligence and Investigation (Customs), FBR, Peshawar and another (2025 SCMR 684), Director, Intelligence and Investigation (Customs), FBR, Peshawar and others v. Muhammad Ishaq and others (2026 SCMR 885) and recent judgment of this Court reported as The Collector of Customs (Enforcement), Multan v. Abdul Bari [2026 LHC 6041 (LHC Website)], that where the statutory condition is actually satisfied, the adjudicating and appellate authorities have no discretion to release the conveyance on redemption fine.

Those judgments, however, do not obviate the antecedent requirement of establishing that the vehicle was carrying smuggled goods. The Supreme Court authorities themselves proceeded upon established recovery of foreign-origin smuggled goods and application of the statutory bar to the conveyance carrying them. The judgment of this Court dated 20.11.2025 in Customs Reference No.35977 of 2025, though arising from a different factual setting,

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likewise proceeded on the premise that the confiscation of the conveyance could not be sustained where the foundational allegation of smuggling had not been established. In the present case, the very character of the goods as smuggled has not been established. Consequently, clause (ba) of SRO 499(I)/2009 is not attracted and the question of an absolute statutory bar to release of the vehicle does not arise.

16.The applicant-department has also alleged that the vehicle was used with the active connivance of its owner and driver. This allegation, however, has not been supported by any independent material identified in the impugned proceedings. More importantly, once the goods themselves were not established to be smuggled, the consequential foundation for confiscation of the vehicle also failed. The unconditional release directed by the learned Appellate Tribunal was, therefore, a consequence of its factual finding regarding the character of the goods and not an exercise of discretion contrary to

SRO 499(I)/2009.

CONCLUSION

17.The learned Appellate Tribunal considered the documentary material produced at the time of interception and thereafter, took note of the verification furnished by M/s ENAR, considered the departmental allegations regarding the end-user and licensing requirements, and reached the conclusion that the applicant- department had failed to establish the smuggled character of the particular consignment. That conclusion is supported by the record and has not been shown to suffer from perversity, material misreading or non-reading of evidence. The reliance upon the Federal Tax Ombudsman’s findings was only an additional circumstance and does not form the foundation of the impugned judgment.

18.In view of the foregoing discussion, the impugned judgment dated 12.02.2026 passed by the learned Appellate Tribunal is legally sustainable, supported by the material on record and within the statutory framework. The first proposed question, insofar as it

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proceeds merely from the notified status of petroleum products and alleged domestic regulatory violations, is answered in the negative. The second question does not arise on the facts of the present case; nevertheless, where a conveyance is actually established to be carrying smuggled goods within the meaning of Section 2(s), clause (ba) of SRO 499(I)/2009 operates as a statutory bar to its release. Consequently, the instant Reference Application is decided against the applicant-department.

19.Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal in terms of Section 196(5) of the Customs Act, 1969.

(Sultan Tanvir Ahmad) (Muhammad Sajid Mehmood Sethi) Judge Judge

APPROVED FOR REPORTING

Judge Judge

*A.H.S.*