The Collector, Collectorate Of Customs Enforcement 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.11 of 2025

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

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

JUDGMENT

Date of hearing: 13.10.2026.

Applicant by: Mian Muhammad Ishfaq Hussain, Advocate. Respondents Nos.2 & 3 ex parte.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- Through this consolidated judgment, the instant Reference Application and connected Customs Reference No. 12 of 2025, instituted by the applicant-department under Section 196 of the Customs Act, 1969 (“the Act of 1969”), are being decided together. Both references challenge judgments dated 08.05.2025 passed by the learned Customs Appellate Tribunal, Bench-I, Lahore (“the Appellate Tribunal”). Both matters arise from interceptions made on the same date, involve consignments bearing the packaging of the same domestic manufacturer and raise substantially identical questions of law.

A. THE QUESTION OF LAW

2.The following question of law, asserted to have arisen out of the impugned judgment dated 08.05.2025, passed by the learned Customs Appellate Tribunal, Bench-I, Lahore (“Appellate Tribunal”), has been pressed and argued for our opinion:- “Whether the appellants ever discharged burden of proof in respect of the impugned goods in terms of Section 187 read with 156(2) of the Customs Act, 1969, where the provided documents do not match with the impugned goods and no documentary evidence of payment of seized skimmed milk powder was provided by the claimant of the same?”

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B. BRIEF FACTS

3.Briefly stated, on 30.12.2024, officials of the Anti-Smuggling Organization, Collectorate of Customs (Enforcement), Multan, intercepted a Foton Mazda carrier bearing Registration No. CAF-5508 near Police Station Pak Gate, Multan. The vehicle was carrying 190 bags of skimmed milk powder, each weighing 25 kilograms and aggregating 4,750 kilograms, in outer bags bearing the name “Malmo Foods”. The inner bags were made of plain polythene, and no production or expiry dates were printed on them. The driver produced no documents and identified one Umar Jutt as the owner of the goods. The goods and vehicle were detained and subsequently seized under Section 168 of the Act on the allegation that the goods were foreign- origin, non-duty-paid and smuggled, having been repacked in locally branded packaging. The claimants maintained that the goods had been manufactured locally by M/s Malmo Foods (Pvt.) Ltd., Lahore, and produced production records, delivery challans, certificates of analysis, powder-plant daily log sheets and sales tax returns in support of their claim. The detecting agency sought verification from the Collectorate of Customs (Appraisement-West), Lahore, which deputed a team of two Inspectors to visit the factory on 04.01.2025. According to the Department’s own account, the team observed the production process, recorded that the packing of skimmed milk powder was outsourced, and found freshly packed bags at the premises. The report further recorded that the brand name “Malmo” was repeatedly printed on the inner polythene packaging of the factory’s finished product. Notwithstanding the aforesaid verification, the Department maintained that the seized consignments did not conform to the factory’s standard packaging. The objections included the use of transparent and unprinted inner bags, closure with nylon ties, absence of printed batch or serial numbers, placement of the inner bags upside down inside the outer bags and manual stamping of manufacturing and expiry dates. A show-cause notice followed, culminating in Order-in-Original No. 330/2025 dated 11.03.2025,

Customs Reference No.11 of 2025 & connected case whereby the Additional Collector of Customs (Adjudication), Faisalabad, ordered outright confiscation of the goods under Section 156(1)(90) and of the carrier vehicle under Section 157(2) of the Act, read with SRO 499(I)/2009. The adjudicating officer held that the claimant had failed to establish local manufacture and lawful possession, particularly in the absence of a bilty, sales tax invoice and other supporting documents. The owner of the vehicle and the claimant of the goods filed Customs Appeal Nos. 384/LB/2025 and 385/LB/2025, respectively. By judgment dated 08.05.2025, the Tribunal allowed both appeals, set aside the Order-in-Original and directed unconditional release of the goods and the vehicle. It also overruled the objection regarding limitation, recording that the order had been received on 10.04.2025 and the appeals were instituted on

4.The connected Customs Reference No. 12 of 2025 arises from a second interception made on 30.12.2024, when the ASO staff found a Shahzore Mazda bearing Registration No. LZJ-7047 parked unattended near Vehari Chowk, Multan. No driver was present, and no documents were found in the vehicle. It was carrying 105 bags of skimmed milk powder, each weighing 25 kilograms and aggregating 2,625 kilograms, bearing “Malmo Foods” outer packaging and plain polythene inner bags. The goods and vehicle were taken to the State Warehouse, Hamipur Kanora, Multan, and subsequently seized under Section 168 of the Act in Seizure Case No. 271/2024. Umar Jutt appeared as claimant of the goods, asserted that they had been manufactured locally by M/s Malmo Foods (Pvt.) Ltd., Lahore, and produced documents in support. The Department raised substantially the same objections as in the first seizure, maintaining that the documents related to the manufacturer’s general production and did not establish the origin of the particular consignment. The Department also relied upon the factory-verification report dated 04.01.2025 and the alleged packaging discrepancies. By Order-in-Original dated 11.03.2025, the Additional Collector of Customs (Adjudication),

Customs Reference No.11 of 2025 & connected case Faisalabad, ordered outright confiscation of the goods under Section 156(1)(90) and of the vehicle under Section 157(2) of the Act, read with SRO 499(I)/2009. The owner of the vehicle and the claimant of the goods filed Customs Appeals. The learned Appellate Tribunal allowed both appeals through judgment dated 08.05.2025 and directed unconditional release of the goods and vehicle.

5.In Customs Appeal No. 385/LB/2025, the learned Appellate Tribunal accepted the claim of local origin, noting that skimmed milk powder had been treated as a non-notified item in certain judgments, that a representative of M/s Malmo Foods had established the local nature of the product, and that the Department had not produced a forensic or laboratory report showing that the powder was imported. It further observed that the documents produced by the claimant had not been shown to be false. On that basis, the Tribunal set aside the confiscation of the goods and directed their release.

6.In Customs Appeal No. 384/LB/2025, the learned Appellate Tribunal held that the vehicle could not be treated as having carried smuggled goods once the underlying consignment had been accepted as locally produced. It also considered the objection that the vehicle was not shown to have been used exclusively for carrying offending goods within the contemplation of SRO 499(I)/2009 and observed that the expression “liable to confiscation” did not necessarily entail automatic confiscation.

7.The Tribunal adopted substantially the same reasoning in Customs Appeals Nos. 386/LB/2025 and 387/LB/2025 concerning the second consignment. Certain details appearing in the recorded grounds of those appeals, including references to Order-in-Original and the location of the first interception, appear inconsistent with the particulars of the second seizure. Those discrepancies must be distinguished from the Tribunal’s substantive findings on the origin of the goods and the consequential treatment of the vehicle. The applicant-department has not demonstrated that the operative conclusions necessarily depended upon the inconsistent particulars.

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Our determination, therefore, proceeds on the evidence and legal grounds material to the common question raised in these references.

C. THE CONTENTIONS

8.The learned counsel for the applicant-department contends that the learned Appellate Tribunal had failed to appreciate the alleged packaging anomalies, the absence of a bilty, sales tax invoice and proof of payment, and the failure of M/s Malmo Foods (Pvt.) Ltd. to claim ownership of the goods in its own name. He further argues that the learned Appellate Tribunal had overlooked a discrepancy concerning the taxpayer registration number recorded in its judgment and that an intelligence communication issued after the impugned judgments had identified market players allegedly involved in selling smuggled milk powder under the cover of local production.

9.Conversely, learned counsel for the respondents contends that the goods were locally manufactured, that the production and related documents supported their claim, and that the department had not produced cogent evidence establishing foreign origin or smuggling. He adds that the confiscation could not follow automatically merely because a vehicle had carried goods subsequently alleged to be liable to confiscation.

10.We have considered the submissions and examined the available record. The question formulated by the applicant-department principally concerns the application of Sections 156(2) and 187 of the Act of 1969. The remaining objections are relevant only to the extent that they disclose an error of law, perversity in the findings or a material procedural defect within the scope of reference jurisdiction.

11.The grounds in connected Customs Reference No. 12 of 2025 are substantially identical to those in the main reference. Accordingly, unless a distinction is expressly identified, the discussion and conclusions that follow apply to both references.

D. SCOPE OF REFERENCE JURISDICTION

12.Section 196 of the Act of 1969 confers reference jurisdiction upon this Court in respect of a question of law arising out of the

Customs Reference No.11 of 2025 & connected case Tribunal’s order. The Court does not ordinarily reassess the weight of competing pieces of evidence or substitute its own factual inference merely because another view might be possible. Interference may, however, be warranted where the Tribunal has misinterpreted the governing law, disregarded material evidence, relied upon irrelevant considerations or recorded a finding that is perverse or unsupported by the record. The Hon’ble Supreme Court has explained the division of functions underlying this limitation: the Tribunal is the last forum for the determination of facts, and the remedy of reference exists to resolve only a question of law arising from its order. The High Court is therefore not free to embark upon an unfettered inquiry into factual aspects properly considered and decided by the Tribunal; findings of fact recorded by the Tribunal are not to be disturbed in reference jurisdiction unless they are wrong-headed or unjustified in fact and law, and a question which cannot be answered without investigating facts is not a question of law. Reference can be made Messrs T & N Pakistan Private Limited v. The Collector Customs and others (2022 SCMR 1119), wherein Collector of Customs Karachi and others v. Messrs Haji Ismail Co. and others (2015 SCMR 13 83) and Pakistan State Oil Company Ltd. v. Collector of Custom, E&ST (Adjudication-

II)and others (2006 SCMR 425) are also referred. Nor may the High Court itself ascertain facts, or rely upon material which was not produced before the adjudicating officer or the Tribunal; if it prefers one report to another so as to set aside the Tribunal’s judgment, it must give valid reasons for doing so. Reference can be made to Messrs Middle East Construction Company, Karachi v. The Collector of Customs, Karachi (2023 SCMR 838).

13.The distinction is material here. The Department’s objections regarding the packaging, documentary linkage, identity of the claimant and proof of payment largely invite a reassessment of the evidence. The question properly arising for our consideration is whether the Tribunal applied the statutory burden of proof in

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accordance with law and whether its conclusion regarding local origin is so legally flawed that it can be disturbed in reference jurisdiction.

E. BURDEN OF PROOF UNDER SECTIONS 156(2) AND 187

14.Sections 156(2) and 187 of the Act address the burden of proof in the circumstances specified therein. Their purpose is to place the evidentiary responsibility upon a person who claims lawful authority or lawful possession of goods in the situations covered by the statutory provisions. Such provisions must, however, be applied according to their language and context; they do not authorise an adjudicating authority to disregard relevant evidence produced by a claimant or to equate suspicion with proof of smuggling.

15.The jurisprudential distinction between the legal burden and the evidential burden is important. The statutory burden upon a person in possession cannot be treated as meaningless; equally, its operation does not make the Department’s allegations immune from scrutiny. Where the person concerned produces a reasonably supported explanation of lawful possession, the adjudicating authority must evaluate that explanation against the Department’s evidence and the circumstances of seizure. The sufficiency of the explanation and the effect of the statutory presumption must be assessed on the record as a whole, rather than by treating the absence of one particular commercial document as conclusive proof of smuggling.

16.The burden under the statute is, moreover, a staged one. The Hon’ble Supreme Court has held that an importer discharges the initial burden of proof by producing the documentation establishing the nature of the goods, and that if the Customs department does not accept it, the department must produce evidence in rebuttal and state why the material produced is incorrect. Once the initial burden under Section 187 is discharged through documents recognised by law, the burden shifts upon the Customs authorities to prove otherwise by adopting the legal course. No adverse inference can be drawn against a bona fide holder unless the authorities prove the contrary. Reference can be made to Director, Intelligence and Investigation (Customs),

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Federal Board of Revenue v. Zaman Khan and others (2026 SCMR 816)), and (The Intelligence Officer, Directorate of Intelligence and Investigation, FBR and others v. Abdul Karim and others (2025 SCMR 969). A caution is necessary. In the said vehicle cases a strong presumption of truthfulness attached to a statutory act, namely registration under the motor vehicle law, and the decisions also rested on Section 211 of the Act. No comparable presumption attaches to private commercial records such as production logs and delivery challans. Those authorities are therefore relied upon only for the structure of the burden, that is, an initial evidentiary burden on the claimant followed by an obligation upon the department to rebut with evidence, and not for any presumption that the claimants’ documents are correct.

17.The approach is consistent with the principles underlying the decisions referred to in the impugned judgments, which have been cited in connection with the burden of proof under customs law, as well as with the Supreme Court authorities noticed above. The precise application of those authorities must depend upon their holdings and the statutory provisions considered in each case. The governing principle for the present references is that the statutory burden and the evidence adduced by both sides must be considered together; neither can be examined in isolation.

18.A distinction in the applicable standard of proof also deserves notice. The goods were ordered to be confiscated under clause (90) of Section 156(1) of the Act, which affords a person charged thereunder the defence of lawful excuse, the proof of which lies on him. The Hon’ble Supreme Court has held that lawful excuse is an expression of wider import which carries a lesser degree of burden than lawful authority; that Section 187, being a general provision, cannot be applied so as to narrow the specific defence available under clauses (89) and (90); and that the person charged is required to show that the excuse put forward, as distinct from the handling of smuggled goods, is lawful. In the case of Abdul Karim supra, the Hon’ble Supreme

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Court further held that, for clause (89) to apply, the goods must in the first place be smuggled within the meaning of Section 2(s) of the Act. The question referred is framed by reference to Section 187 read with Section 156(2), and this Court has examined it accordingly; it is unnecessary to decide the precise interplay between Section 187 and clause (90). Even if the lesser standard of lawful excuse were the one applicable to the charge, the claimants’ position would be no weaker, since material sufficient to discharge the burden as framed in the question would a fortiori suffice for the lesser burden, and the conclusion reached in these references would stand.

19.Applying that principle, the claimants asserted that the consignments were products of M/s Malmo Foods (Pvt.) Ltd., Lahore, and produced production records, certificates of analysis, plant log sheets, delivery challans and sales tax returns in support of the claim. The Tribunal recorded that the documents had not been shown to be false. More significantly, the department’s own verification team visited the manufacturer’s premises and confirmed the existence of a production facility, the availability of freshly packed bags, and the outsourcing of secondary packaging operations. It also recorded the use of the “Malmo” brand on the inner packaging of the factory’s finished product.

20.The factory-verification report did not conclusively establish that each seized bag formed part of the manufacturer’s verified production or that every document produced related specifically to the consignments in question. Nevertheless, it was material evidence supporting the claim of domestic manufacture. The Department could not reasonably rely upon the inspection as part of its investigation while disregarding those aspects of the same report that supported the claimants’ explanation. The Tribunal was entitled to consider the report alongside the documents produced and the absence of evidence establishing foreign origin.

21.The department’s principal answer is that the seized packaging differed from the factory’s standard packaging. The alleged use of

Customs Reference No.11 of 2025 & connected case transparent inner bags, nylon ties, manually stamped dates, absence of printed batch numbers and unusual placement of inner bags may raise legitimate questions regarding quality control, traceability or the handling of the goods. Those circumstances, however, do not by themselves establish that the contents were imported in violation of the Act. The evidentiary value of such discrepancies depends upon their connection with the alleged foreign origin of the goods and their consideration alongside the remaining material.

22.The applicant-department did not produce a laboratory or forensic report establishing that the contents were foreign-origin powder, nor did it identify an import consignment, foreign supplier, route of smuggling or other independent evidence directly connecting the seized powder with an unlawful importation. A laboratory report is not an indispensable legal prerequisite in every smuggling case; foreign origin may be established through other reliable evidence. In the present matters, however, the absence of such corroboration assumes significance because the principal basis of the Department’s allegation was the packaging discrepancy, while its own factory- verification report supported the existence of local production and outsourced packing.

23.The same consideration applies to the alleged absence of banking records, a bilty and a sales tax invoice linking the precise consignments to the manufacturer. Such documents may be relevant in assessing the credibility and completeness of a claim of lawful acquisition. Their absence, however, must be evaluated in the context of the applicable statutory requirements and the remaining evidence. The applicant-department has not identified a provision making the production of each of these documents an indispensable condition for establishing lawful possession of locally manufactured goods. Nor can their absence, without more, conclusively establish that the powder was of foreign origin.

24.The Tribunal’s conclusion was not based solely on the printing appearing on the outer bags. It took account of the claim of domestic

Customs Reference No.11 of 2025 & connected case production, the documents produced, the factory-verification report and the absence of evidence demonstrating that the documents were false or that the powder was imported. The department has not established that the Tribunal ignored a decisive piece of evidence or applied an incorrect legal test. Its disagreement with the weight attached to the available material does not, by itself, raise a ground for interference under Section 196 of the Act.

25.The Appellate Tribunal also referred to judgments in which skimmed milk powder had been treated as a non-notified item. Since the present references can be resolved on the evidentiary record and the failure to establish the alleged foreign origin, it is unnecessary to determine the wider question of the classification or notification status of skimmed milk powder. No opinion is expressed on that aspect.

26.We, therefore, hold that, on the facts recorded by the Tribunal, the claimants produced material sufficient to discharge the evidentiary burden placed upon them, and the Department failed to displace their explanation by evidence establishing the alleged smuggling. The proposed question of law is answered in the affirmative, to the extent that the claimants discharged the burden required of them on the record of these cases, and against the applicant- Department. This conclusion is confined to the evidence and findings under consideration and does not dispense with the statutory burden in cases where its conditions are otherwise established.

F. THE CARRIER VEHICLE

27.The confiscation of the carrier vehicles requires separate consideration because Section 157(2) of the Act provides that a conveyance used in the removal of goods liable to confiscation shall also be liable to confiscation. The statutory expression “liable to confiscation” is not synonymous with a direction that the conveyance “shall be confiscated” in every case. The distinction has been authoritatively explained by the Hon’ble Supreme Court in Haji Abdul Razzak v. Pakistan through Secretary, Ministry of Finance, Islamabad and another (PLD 1974 Supreme Court 5). The principle emerging

Customs Reference No.11 of 2025 & connected case from that judgment is that where the law renders property liable to confiscation, the competent authority must exercise the discretion vested in it on sound judicial principles and in accordance with natural justice. The affected person must be afforded an adequate opportunity to present his case, and the circumstances bearing upon his responsibility must receive due consideration.

28.The above principle was applied by a learned Division Bench of this Court in Collector of Customs v. Customs Appellate Tribunal Bench-II, Lahore and others (2020 PTD 209). The judgment was upheld by the Hon’ble Supreme Court through its order dated 02.03.2021 in C.A. Nos. 336–345 of 2020 and C.P. Nos. 141–142 of 2020, titled Collector of Customs, Model Customs Collectorate, Multan v. Asmat Ullah Khan and others. The Supreme Court declined to interfere with the impugned orders, observing that no defect or lacuna, factual or otherwise, had been shown to warrant interference.

29.The principle is also consistent with the reasoning in Khan Wali v. The Collector MCC, Peshawar and 2 others (2016 PTD 2388) and the order dated 15.07.2015 passed in Customs Reference No.52 of 2015 titled Nazir Ahmed v. Chairman, Customs Appellate Tribunal, etc., as also referred to in the judgment reported as Jahanzaib and another v. Additional Collector of Customs (Adjudication), Collectorate of Adjudication, Dry Port, Faisalabad and another (2026 PTD 738). The authorities emphasise that confiscation of a conveyance must be grounded in the applicable statutory conditions and a lawful exercise of discretion, rather than treated as an automatic consequence irrespective of the circumstances of the owner or the nature of the alleged offence.

30.Applying the above principles, the learned Appellate Tribunal’s direction for release of the vehicles followed its conclusion that the underlying goods were not established to be smuggled. The applicant- department has not shown that the Appellate Tribunal disregarded the governing provisions or that an independent basis for confiscation existed notwithstanding its finding concerning the goods. Nor has the

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department established that the statutory conditions invoked for confiscation were satisfied independently of the disputed allegation of smuggling. The directions for release of the vehicles, therefore, disclose no error of law warranting interference in these references.

31.The same reasoning applies to the Shahzore Mazda bearing Registration No. LZJ-7047 in Customs Reference No. 12 of 2025. The fact that the vehicle was found unattended may give rise to suspicion, but does not, without further evidence, establish that its owner knowingly participated in smuggling or that the conveyance was liable to confiscation independently of the alleged status of the goods. The applicant-department has not established a separate legal ground requiring a different conclusion in the connected reference. It has also not been shown that the owner of the conveyance colluded with the owner of the goods. The Customs Appellate Tribunal has taken the view that no person should be deprived of his property by way of penalty unless he is in some measure responsible for assisting or furthering the commission of the offence.

G. CONCLUSION

32.For the foregoing reasons, the applicant-department has failed to demonstrate that the learned Appellate Tribunal misapplied Sections 156(2) or 187 of the Act, 1969, disregarded decisive evidence or reached a perverse conclusion regarding the origin of the goods. The Appellate Tribunal’s assessment was supported by the claimants’ documentary material and the applicant-department’s own factory-verification report, while the alleged packaging discrepancies were not corroborated by evidence sufficient to establish that the powder was of foreign origin. The remaining objections do not disclose an error of law warranting interference under Section 196 of the Act.

33.Consequently, the question of law is answered in the affirmative, in favour of the respondents and against the applicant- department, to the extent that the claimants discharged the evidentiary

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burden required on the record of these cases and the department failed to rebut their explanation by sufficient evidence. Consequently, these Reference Applications are accordingly dismissed.

34.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 *Sultan / A.H.S.*