Deputy Collector Collectorate Of Customs vs 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.13 of 2026

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

Versus

The Customs Appellate Tribunal, Special Division Bench-I, Lahore & others

JUDGMENT

Date of hearing: 06.10.2026.

Applicant by: Mian Muhammad Ishfaq Hussain, Advocate. Respondents by: Abdul Majid Chaudhry, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- This consolidated judgment shall decide instant Reference Application under Section 196 of the Customs Act, 1969 (“the Act of 1969”), along with connected Reference Applications i.e., Customs Reference Nos. 04 & 14 of 2026, as common questions of law and facts are involved in these cases.

2.The following questions of law, asserted to have arisen out of the impugned judgment dated 17.02.2026, passed by learned Customs Appellate Tribunal, Special Division Bench-I, Lahore (“Appellate Tribunal”), have been pressed and argued for our opinion:-

1.Whether the learned Customs Appellate Tribunal erred in law by violating the principle of audi alteram partem, condemning without fair hearing, since the detailed written stance of the department, including findings of non-existent manufacturing activity, was neither discussed nor incorporated in the impugned judgment?

2.Whether under the facts and circumstances, the Tribunal erred in law by passing the impugned judgment contrary to record and applicable law, as the findings are based on misreading and non-reading of documents, ignoring the absence of manufacturing activity, and thus, violating Section 24A of the General Clauses Act, 1897?

Customs Reference No.13 of 2026 & connected cases

3.Whether the seizing agency rightly invoked Section 32 of the Customs Act, 1969, penalizing the respondent for mis- declaration at the import stage, where exemption was wrongly claimed on the false pretext of pesticide manufacturing?

4.Whether petroleum products constitute “notified goods” under Section 2(s)(ii) of the Customs Act, 1969 read with SRO 566(I)/2005 and whether their import in breach of restrictions, including concealment under the guise of pesticide manufacturing, amounts to smuggling?

5.Whether a vehicle liable to confiscation under Section 157(2) of the Customs Act, 1969 can be released when the goods carried therein were proved to be smuggled, and the accused falsely claimed exemption as a pesticide manufacturer?

6.Whether, after inspection of clause (ba) in Table (I) of SRO 499(I)/2009, the Tribunal can lawfully release a vehicle unconditionally when it was exclusively carrying goods falling under Section 2(s) of the Customs Act, 1969?

3.Through connected Customs Reference No. 14 of 2026, the department has challenged the judgment dated 17.02.2026 passed by the learned Appellate Tribunal. Connected Customs Reference No. 04 of 2026 calls in question the judgment dated 19.01.2026 passed by the learned Appellate Tribunal, whereby the release of 46,550 kilograms of White Spirit, along with carrier vehicle bearing registration No. TMF-599, was maintained.

4.The controversy arises from the interception and seizure of consignments of Iranian-origin White Spirit transported in oil tankers after their alleged clearance through Taftan Customs Station. The department maintains that the consignments had deviated from their declared destinations and that the importer, M/s Al-Noor Agro Chemicals, Bahawalpur, had allegedly obtained fiscal concessions by representing itself as a manufacturer of pesticides despite the purported absence of machinery, laboratory facilities, other essential raw materials and verifiable manufacturing activity at its premises. It is further alleged that the imported White Spirit was being diverted to the grey market and that the transportation and disposal of the product contravened the Petroleum Act, 1934, the Petroleum Rules, 1937, and the Import Policy Order, 2022. The department, accordingly, invoked

Customs Reference No.13 of 2026 & connected cases various provisions of the Customs Act, 1969, including Sections 2(s), 16, 32, 32A, 156 and 157, read with SRO No. 566(I)/2005 dated 06.06.2005, SRO No. 499(I)/2009 dated 13.06.2009, and the relevant provisions of the petroleum regulatory framework.

5.Learned counsel for the applicant-department contends that the learned Appellate Tribunal failed to appreciate the cumulative effect of the relevant statutory provisions, ignored material evidence and the department’s written submissions, and erroneously held that the Customs authorities lacked jurisdiction to seize the consignments and carrier vehicles after customs clearance. He submits that Section 16 of the Customs Act, 1969, read with paragraph 7(1) of the Import Policy Order, 2022, preserves the applicability of restrictions imposed under other laws notwithstanding customs clearance. He further argues that the alleged diversion of White Spirit, absence of an identified consignee in the transport documents, and failure to establish lawful delivery to a licensed storage facility justified the action taken by the seizing agency. In support, he has referred to order dated 26.02.2026, passed by the Hon’ble Supreme Court in C.P.L.A. 5533 / 2025 and CMA 1475 / 2026 titled Director, Directorate of Intelligence and Investigation, FBR, Lahore v. M/s Qudrat Khan & Co. and others, order dated 02.04.2026, passed by the Hon’ble Supreme Court in C.P.L.A. 5533 / 2025 titled Director, Directorate of Intelligence & Investigation, FBR, Lahore v. Qudrat Khan & Co. and others and M/s Sikandar and Brothers v. Government of Pakistan through Member (Judicial) Central Board of Revenue and another (PTCL 1991 CL.

6.Conversely, learned counsel for the respondents submits that the consignments were imported through the prescribed customs channel under valid Goods Declarations, supported by laboratory reports and accompanied by the requisite import and storage licence in Form-L issued by the Department of Explosives. He contends that the allegations of diversion, absence of manufacturing activity and misuse of fiscal concessions, without proof of a specific statutory

Customs Reference No.13 of 2026 & connected cases contravention attracting confiscation under the Customs Act, 1969, could not render the goods smuggled. He further submits that any breach of petroleum licensing conditions or short-levy of duties and taxes must be addressed by the competent authorities in accordance with the applicable law and prescribed procedure. According to learned counsel, the department could not convert allegations concerning the subsequent use, storage or disposal of duly imported goods into an offence of smuggling without establishing its essential statutory ingredients. He maintains that the learned Appellate Tribunal rightly considered the import documents, clearance record and Form- L licence and correctly held that deficiencies in the importer’s manufacturing arrangements, by themselves, were insufficient to render the goods liable to confiscation under the Customs Act, 1969.

7.We have heard the learned counsel for the parties and examined the available record.

8.The controversy principally concerns the distinction between the lawful import and clearance of goods, their subsequent transportation and use, and the statutory circumstances in which imported goods and the conveyances carrying them may be subjected to seizure or confiscation. These matters must be examined in the light of the precise language of the relevant statutory provisions rather than on the basis of suspicion arising from the importer’s business arrangements or the subsequent movement of the consignments. The decisive consideration is whether the facts established on record satisfy the legal ingredients of the particular contravention invoked by the department.

9.The completion of customs clearance does not, in every circumstance, confer immunity upon imported goods from subsequent proceedings under the Customs Act, 1969. Where a false declaration, evasion of duties or taxes, or contravention of an applicable prohibition or restriction is established, the competent authority may exercise the powers conferred by the relevant statutory provision. Equally, however, the mere fact that goods have subsequently been

Customs Reference No.13 of 2026 & connected cases diverted, transported contrary to a licensing condition, or dealt with in a manner inconsistent with the importer’s declared business does not automatically render them smuggled. The department must establish the necessary legal nexus between the conduct alleged, the prohibition or restriction applicable to the goods, and the particular provision under which confiscation is sought. A regulatory irregularity may attract consequences under the enactment governing that irregularity without necessarily satisfying the ingredients of a customs offence. The existence of a possible contravention under one statutory regime cannot, by itself, be treated as proof of a different contravention under another.

10.In the present matters, the learned Customs Appellate Tribunal proceeded on the basis that the consignments were supported by import documentation, laboratory reports and the relevant Form-L licence, and that the department’s allegations primarily concerned the alleged diversion of the consignments, the absence of manufacturing facilities at the importer’s premises, and the suspected subsequent use or disposal of White Spirit. The Tribunal concluded that these circumstances, in the manner established before it, did not justify treating the subject consignments as smuggled goods or confiscating the carrier vehicles under the provisions invoked by the department. The legality of that conclusion must be assessed against the relevant statutory provisions and the material forming part of the record.

11.The department’s principal objection is that the learned Customs Appellate Tribunal failed to appreciate that the definition of smuggling under section 2(s) of the Customs Act, 1969, is not confined to the act of bringing goods into Pakistan through an unauthorised route. The provision must indeed be read according to its applicable statutory language, including the relevant prohibition or restriction and the conduct alleged to fall within its scope. Nevertheless, the breadth of a statutory definition does not permit the department to dispense with proof of the facts necessary to bring the goods within it. The mere suspicion that a duly imported product may

Customs Reference No.13 of 2026 & connected cases subsequently have been diverted, or that an importer may not have carried on the manufacturing activity represented by it, cannot automatically substitute for a finding that the particular goods fall within the statutory category of smuggled or confiscable goods.

12.In this context, the alleged breach of the Petroleum Act, 1934, and the Petroleum Rules, 1937, assumes significance. The rules governing the import, landing, storage, transportation and dispatch of petroleum products must be applied in accordance with their terms. Rule 29(2), in particular, cannot be ignored where its requirements are attracted to the dispatch of petroleum. Likewise, the existence of a Form-L licence does not, by itself, establish compliance with every condition governing the subsequent storage, transportation or delivery of the product. Equally, an alleged breach of a petroleum licensing condition does not, without the requisite statutory nexus, automatically establish an offence of smuggling under the Customs Act, 1969. Any such breach must be dealt with under the applicable law, while its relevance to customs confiscation must be assessed against the particular statutory provision invoked.

13.Section 16 of the Customs Act, 1969, and paragraph 7(1) of the Import Policy Order, 2022, must likewise be construed within their respective statutory settings. The applicability of prohibitions, restrictions and conditions imposed under other laws cannot be ignored merely because goods have passed through customs clearance. However, these provisions cannot be interpreted as authorising confiscation in every case where a subsequent regulatory irregularity is suspected. It remains necessary to identify the restriction applicable to the particular import or transaction, establish its breach and determine whether the Customs Act attaches the confiscatory consequence sought by the department. The distinction is between a restriction whose breach attracts a consequence under the customs law and a regulatory obligation whose violation is to be dealt with under another statutory regime. The department’s argument

Customs Reference No.13 of 2026 & connected cases cannot succeed merely by invoking the existence of restrictions under other laws without establishing the requisite statutory connection.

14.The department has placed considerable reliance upon the inspection reports which allegedly disclosed an absence of manufacturing machinery, laboratory facilities, technical staff and other raw materials at the importer’s premises. These circumstances may be relevant to an inquiry into the genuineness of the claimed manufacturing activity, the use of the imported product, or the conditions under which fiscal concessions were availed. They may also justify further investigation by the competent authority. However, their evidentiary significance must be assessed in the context of the particular statutory charge. The absence of manufacturing facilities, without more, does not necessarily establish that each identified consignment was smuggled or that the goods and vehicles were liable to confiscation under the precise provisions invoked in the seizure proceedings.

15.Similarly, the alleged route deviation, the particulars recorded on the bilty, the absence of a named consignee, and the alleged failure to demonstrate delivery to the licensed premises are relevant circumstances and cannot simply be disregarded. Their legal effect, however, depends upon the applicable restrictions, the terms of the relevant licence, the documentary record and the nature of the alleged contravention. Suspicion may justify investigation; confiscation must rest upon the statutory conditions governing that consequence. In the impugned matters, the learned Customs Appellate Tribunal considered the department’s allegations and concluded that the material before it did not establish the requisite basis for confiscation under the provisions relied upon. The applicant-department has not demonstrated, within the permissible limits of reference jurisdiction, that this conclusion proceeds upon an erroneous interpretation of the governing law.

16.The next question concerns the department’s reliance upon sections 32 and 32A of the Customs Act, 1969. The department

Customs Reference No.13 of 2026 & connected cases alleges that the respondents misrepresented their business as pesticide manufacturing and thereby obtained exemption or concessional treatment in respect of sales tax and advance income tax at the import stage. These allegations raise questions concerning the truthfulness of the declarations made, the availability of the claimed concessions and any resulting short-levy of duties or taxes. Such matters must be determined by the competent authority under the relevant statutory provisions, upon notice to the person concerned and after observance of the prescribed procedure.

17.The distinction between proceedings for recovery of short- levied duties or taxes and proceedings for confiscation of goods is material. In The Directorate of Post Clearance Audit through DG, FBR, Islamabad and another v. Nestle Pakistan Limited, Islamabad and others (2025 SCMR 1974), the Hon’ble Supreme Court, by majority, recognised the authority of Customs to recover import-stage sales tax and advance income tax that had remained unpaid owing to an allegedly wrongful exemption, subject to the applicable statutory requirements and limitation. The said judgment establishes that clearance of goods does not, by itself, extinguish an otherwise lawful claim for recovery of fiscal liability. It does not, however, hold that the grant of an allegedly inadmissible exemption, without more, establishes smuggling or dispenses with the independent requirements for confiscation of goods or conveyances. An allegation that an importer wrongly claimed a fiscal concession may attract the applicable recovery, penalty or fiscal-fraud provisions, provided their statutory requirements are satisfied; it does not follow that the goods thereby become smuggled goods for purposes of every confiscatory provision invoked by the department.

18.The legality of any post-clearance fiscal action must, moreover, be assessed with reference to the particular statutory power exercised and the procedure prescribed thereunder. In The Collector of Customs, Karachi v. Allmed Laboratories Karachi and another (2025 PTD 1206), the Sindh High Court held that the power under section 80(3)

Customs Reference No.13 of 2026 & connected cases of the Customs Act, 1969, could not be invoked for reassessment after release of the goods, and that the department was required to resort to an appropriate statutory course. The judgment does not exclude every form of post-clearance recovery; rather, it underscores the need to act within the scope of the particular provision invoked. Likewise, The Collector of Customs, MCC Port Muhammad Bin Qasim, Karachi v. Shahzad Ahmed (2021 PTD 2146), decided in the context of an appeal against acquittal and on the basis that the case was one of no evidence, does not establish a general absence of Customs jurisdiction over post-clearance fiscal matters. It nevertheless illustrates that an alleged fiscal irregularity cannot be equated with a proved customs offence without establishing the ingredients of the relevant law. Consequently, the impugned judgments shall not be construed as determining, as an abstract proposition, the ultimate fiscal liability of the respondents under any separate proceeding lawfully initiated under the applicable law, nor as preventing the competent authority from pursuing such liability in accordance with the prescribed procedure.

19.The department has further challenged the release of the carrier vehicles by invoking section 157(2) of the Customs Act, 1969, read with section 181 thereof and SRO No. 499(I)/2009 dated 13.06.2009, particularly clause (ba), as amended. The department’s argument must be considered in the light of the authoritative pronouncements of the Hon’ble Supreme Court in Bashir Ahmad v. Director, Directorate of Intelligence and Investigation (Customs), FBR, Peshawar and another (2025 SCMR 684) and Director, Intelligence and Investigation (Customs), FBR, Peshawar and others v. Muhammad Ishaq and others (2026 SCMR 885). The latter judgment explains that where the goods and conveyance are established to fall within the categories covered by the applicable statutory prohibition, the adjudicating authority and the appellate fora cannot release the conveyance against redemption fine in disregard of that prohibition. In such circumstances, the expression “liable to confiscation” does not confer an unrestricted discretion to order release contrary to the notification.

Customs Reference No.13 of 2026 & connected cases

20.The aforesaid principle must be applied according to its terms. The statutory prohibition cannot, however, be invoked merely because the department alleges smuggling or points to irregularities in the route, transportation documents or declared destination of the goods. Its operation depends upon establishing the foundational facts attracting the relevant provisions of the Customs Act, 1969, and the particular category of conveyance covered by SRO No. 499(I)/2009, as amended. The question is, therefore, whether the goods have been shown on the material forming part of the record to fall within the applicable statutory definition of smuggled goods and whether the respective conveyances satisfy the conditions of the prohibition. In the present references, the learned Customs Appellate Tribunal concluded that the department had failed to establish a sufficient legal basis for confiscation of the subject consignments under the provisions invoked. The applicant-department has not demonstrated that the statutory prerequisites for attracting the prohibition were established on the record so as to render the release orders legally unsustainable. Accordingly, the challenge to the release of the vehicles cannot succeed merely by invoking section 157(2) and the aforesaid SRO.

21.The respondents may seek support from Jahanzaib and another v. Additional Collector of Customs (Adjudication), Collectorate of Adjudication, Dry Port, Faisalabad and another (2026 PTD 738), wherein this Court distinguished the expression “shall be liable to confiscation” from “shall be confiscated” and emphasised the need for a fair and judicious exercise of discretion. The said judgment cannot, however, be read as preserving a discretion to release a conveyance against redemption fine where the statutory prohibition has been attracted, in view of the subsequent authoritative pronouncement of the Hon’ble Supreme Court in Muhammad Ishaq. The requirement of a fair hearing and the existence of discretion to order release are distinct questions: observance of natural justice remains necessary, but it cannot confer a power to disregard a binding statutory prohibition. Conversely, the prohibition cannot be invoked without

Customs Reference No.13 of 2026 & connected cases establishing the facts that bring the goods and conveyance within its scope. Thus understood, the principle laid down in Jahanzaib’s case supra does not displace the rule laid down by the Hon’ble Supreme Court; the two must be applied in their respective statutory settings.

22.The department has also alleged violation of the principles of natural justice and section 24-A of the General Clauses Act, 1897, on the ground that its written stance and material evidence were neither adequately discussed nor incorporated in the impugned judgments. The requirement of a reasoned order is fundamental to lawful administrative and quasi-judicial decision-making. An adjudicating forum must consider the material submissions and evidence relevant to the controversy and disclose the reasons supporting its conclusions. Nevertheless, the mere fact that every submission or document has not been reproduced verbatim does not, by itself, establish a denial of hearing or non-application of mind. Having examined the grounds raised, we are not persuaded that the applicant-department has established a defect of such legal significance as to warrant interference with the impugned judgments.

23.A distinction must also be maintained between a challenge to the adequacy of reasons and an invitation to reappraise the evidence. In reference jurisdiction, this Court does not sit as a further appellate forum to substitute its assessment of every factual circumstance for that of the learned Customs Appellate Tribunal. Interference is warranted where a question of law arises from an erroneous construction of the statute, a material legal misdirection, or a finding shown to be legally unsustainable on the record. The allegation that the learned Customs Appellate Tribunal acted without lawful authority or failed to consider the element of mens rea does not furnish an independent ground for acceptance of these references. The relevance of knowledge, intention or another mental element depends upon the particular offence or statutory provision invoked. Such an element cannot be presumed solely from the allegation that the importer lacked manufacturing facilities, nor can its legal significance

Customs Reference No.13 of 2026 & connected cases be determined in the abstract without identifying the applicable offence and its constituent ingredients. The applicant-department has not shown that the learned Customs Appellate Tribunal adopted a legally erroneous test on this aspect which materially affected the outcome.

24.We have also considered the reliance placed by the applicant- department upon earlier case law concerning confiscation of conveyances and restrictions on the grant of redemption in lieu of confiscation. Such authorities must be applied according to their respective statutory settings and factual foundations. A decision concerning a conveyance used to transport goods established to be smuggled cannot dispense with the need to determine, in the case at hand, whether the goods fall within the relevant statutory category and whether the conveyance attracts the applicable prohibition. The principles laid down in the cases of Bashir Ahmad and Muhammad Ishaq supra have been applied to the extent relevant; they do not dispense with the foundational inquiry required to determine whether the statutory prohibition is attracted in the first place. The department has not demonstrated that the learned Customs Appellate Tribunal’s conclusions are inconsistent with those binding principles on the record of the present references.

25.The allegations concerning the respondents’ business activities, the quantity of White Spirit imported, the capacity of their storage facilities and the manner in which the goods were transported may warrant scrutiny by the competent regulatory and fiscal authorities. Nothing in this judgment should be understood as a declaration that an importer holding a Form-L licence is exempt from compliance with the Petroleum Act, 1934, the Petroleum Rules, 1937, the terms of any applicable licence, or the fiscal provisions governing the importation and use of goods. The finding in these references is narrower: the applicant-department has not established that the impugned judgments suffer from a legal error warranting interference in reference jurisdiction on the grounds presented. Nor does this finding preclude

Customs Reference No.13 of 2026 & connected cases any independent proceeding that may lawfully be initiated or continued in respect of fiscal liability or a regulatory contravention, subject to the applicable statutory requirements and procedure.

26.The questions formulated in Customs Reference No. 13 of 2026 concerning the department’s power to recover import-stage taxes, the alleged violation of natural justice, the applicability of section 24-A of the General Clauses Act, 1897, the restrictions imposed under other laws, the invocation of sections 2(s), 16, 32 and 32A of the Customs Act, 1969, and the confiscation of the carrier vehicles have been considered in the foregoing discussion. To the extent that the first question seeks an abstract determination of the respondents’ ultimate fiscal liability, without a corresponding determination of that liability in the impugned judgment, it does not arise for determination in the present reference. The remaining questions, insofar as they challenge the legal conclusions reached by the learned Customs Appellate Tribunal, are answered against the applicant-department for the reasons recorded above.

27.The questions raised in connected Customs Reference No. 14 of 2026 are substantially governed by the same legal principles. For the reasons stated in this judgment, the department has not demonstrated that the impugned judgment dated 17.02.2026 warrants interference in reference jurisdiction. The reference is, accordingly, answered against the applicant-department, subject to the precise relief and vehicles identified in the operative portion of the impugned judgment forming part of the certified record.

28.Likewise, in connected Customs Reference No. 04 of 2026, the department has not established a question of law requiring interference with the impugned judgment dated 19.01.2026 passed by the learned Customs Appellate Tribunal. The conclusion reached by the learned Customs Appellate Tribunal concerning the seizure and release of the consignment of White Spirit and carrier vehicle bearing registration No. TMF-599 does not warrant reversal on the grounds

Customs Reference No.13 of 2026 & connected cases advanced in the reference. This reference is also answered against the applicant-department.

29.For the foregoing reasons, Customs Reference No. 13 of 2026, being the main reference, and connected Customs Reference Nos. 14 of 2026 and 04 of 2026 are decided against the applicant- department and in favour of the respondents. The impugned judgments of the learned Customs Appellate Tribunal are maintained, and the orders for release of the respective consignments and carrier vehicles shall operate in accordance with the operative portions of those judgments. This decision shall not preclude any independent proceedings for recovery of duties or taxes, or for enforcement of the Petroleum Act, 1934, the Petroleum Rules, 1937, or other applicable law, where such proceedings are otherwise authorised by law and are conducted in accordance with the prescribed procedure.

30.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.*