Former CJ assisted by DGC open the floodgates for the revenue fraudsters

Sri Lanka Customs Whistleblowers
 Far-reaching effects of the TOYOTA LANKA ruling [SC Appeal No: 49/2008]


We, the Sri Lanka Customs Whistleblowers are an independent body formulated to fight corruption and abuse of power by any person holding any public office. Today, we bring with full confidence to the notice of the people about the background and the decision of a very important and infamous supreme court decision from the, government revenue view point, that set up a precedence with very damaging and far-reaching effects. The modus-operandi in this case, that was designed to protect the organised fraudsters has been a minutely planned and well supported by the DGC, by his deliberate inaction, and finally put into action by former CJ, by a creation of a bad law that has defied stringent measures against any form of revenue frauds devised in the Customs Ordinance, that were effectively used against the government revenue fraudsters to curb revenue frauds for centuries.


Therefore, the Customs Whistleblowers, we consider it is our duty to blow the whistle and to announce all law abiding people in this country, that the bad law created by the former CJ, has formulated a very safe methodology for the organized government revenue fraudsters effectively defying the government billions of its rightful revenue. The effect of the bad law created by the former CJ was such that it overrides the established statue law, the Customs Ordinance, a very powerful tool against the government revenue fraudsters. The CJ’s ruling in this case formulate a very safe methodology for the revenue fraudsters, to indulge in various types of unlawful actions, circumventing the deterrents imposed by the established by law, with no fear or concern whatsoever about the forfeiture of goods cleared by unlawful means and any further forfeitures that would have been imposed on them for defrauding the government revenue. The far-reaching consequences of the bad law created by the former CJ in this case is such that it had already denied the government of its rightful revenue of billions of rupees and the damages caused by the creation of this bad law continues unabated.


Subject matter of the case


The subject matter in this case is 40 vehicles of Toyota Land Cruizer vehicles imported and cleared through the customs by fraudulent means, defraying the government revenue of over Rs 119,520.000.00. The Customs revenue fraud preventive officers enforced the law against the revenue fraudster and caused the seizure of the vehicles, available with the importer, at the time of the initiation of their fraud preventive action. The importer involved in the fraud challenged the seizure before the Court of Appeal, yet their action failed as the Court of Appeal rejected their writ application wholly as it had no legal basis.




Ruling bad in law by the CJ


Then the fraudster businessman appealed against the ruling in the Supreme Court, and the hearing was allocated to the CJ by himself. The matter was argued before him on 30th June 2009 and the ruling by him was delivered on 30th July 2009 which, the Customs Whistleblowers say is baseless and manifestly unfounded.


The former CJ ruled that the order by the Court of Appeal is bad in law and held with the fraudster businessman. The CJ declared that the enforcement action by customs against the revenue fraudster is illegal and seizure of goods already cleared through Customs, defrauding the government revenue, is also manifestly illegal. The CJ, ruled that instead of seizure of goods - that have been forfeited by the operation of law- the revenue fraudster should have been allowed to pay the amount of customs duty defrauded and that the goods.


Former CJ opens the floodgates for the fraudsters


We, the Customs Whistleblowers, can declare that by this irrational ruling by the former CJ the floodgates have been effectively opened to the revenue fraudsters to defraud the government revenue at will with no risk of confiscation of goods imported by illegal means. We can say with certainty that as a result this blunder caused by the former CJ, the revenue losses that is being incurred by the government after the creation of this bad law is unimaginable. Exposing this high handed and manifestly illegal action by the former CJ, which we argue amounts to abuse of the office and the CJ, we urge the President Rajapakse to take appropriate steps to as quickly as possible to arrest the situation, which would otherwise cost the government of its rightful revenue in unimaginable scale. We also urge the President to examine a possibility of bringing an action against the former CJ, for his deliberate illegal and anti-social action that cost billions of rupees of public funds.


Unbecoming an utterly self-centered conduct of the DGC


The Customs Administration plays a very sensitive role concerning the government revenue, which is the lifeline of any government and this key government agency accounts for over 50% of the total revenue of the government. However, we can report with certainty that the incumbent DGC, whose primary duty is to protect the government revenue - section 137 of the Customs Ordinance - has been, instrumental in helping to create the bad law that only highly powerful politico-business-admin-mafia, that is capable of surviving itself under any regime. His deplorable conduct in this case, and his absolute silence and inaction about the aftermath of the creation of the bad law, with far-reaching effects that cost the government billions of rupees of its rightful revenue, is the best example that we could sight to establish his unbecoming conduct as the DGC. The DGC is fully aware of the losses being incurred by the government that continues unabated as a result of the bad law created by the CJ. Yet, he had betrayed the country and let the country to suffer dearly in the hands of powerful politico-business-admin-mafia that we say enjoy patronage of powerful agents in all government agencies, which include certain members in the Judiciary, that is required by law to exercise the peoples’ judicial power appropriately, and not according to the whim and fancies of their own.


Bare facts concerning the TOYOTA LANKA Case - SC Appeal No: 49/2008


Team of Customs officers led by Mr P Saman Silva, seized nine Toyota Land Cruiser vehicles after they had been cleared through the Customs. By the time of seizure, the importer had already sold 31 of such vehicles. The reason for the seizure was that the importer had defrauded the government revenue by suppressing the important information about the vehicles that would attract the higher rate of Customs duties and other levies. The investigations conducted, after the seizure of vehicles, had revealed that for each vehicle the imported has defrauded Rs 2,988.000.00 - well over 29 million rupees - of government revenue and the total amount defrauded was over 119 million.


Modus operandai of the fraud that caused the seizure of the vehicles


The Customs levies a lower rate of Customs duty for vehicle imported for passenger transport, whereas other vehicles - meant private use - are charged at the higher rate of duty. The determining factor of the applicable rate of duty is how the vehicle is designed - whether for private use or public use - and the number of seats provided in the vehicle. Accordingly, by law and procedure, the vehicles designed with 10 seats or over are classified as vehicles for passenger transport and the Customs duties are charged at a lower rate of duty whilst the vehicles designed for private use i.e. with seating capacity of nine or lesser are charged at higher rate of duty.


In this case, the importer in his declaration made to customs, had made a false declaration and had classified the vehicle [under HS code 8703.32.10.01] as a one designed for passenger transport, whereas the vehicles imported were in fact designed for private use with the lesser seating capacity. Accordingly, the importer had paid the lesser rate of duty applied for passenger transport vehicles and cleared the vehicles, almost certainly with the collusion of the officers appointed to examine the vehicles before release. Therefore the act committed by the importer, was illegal as he had managed to clear the vehicles by fraudulent means, defrauding the revenue of Rs 2,988.000.00 for each vehicle. By this willful fraudulent act, all vehicles had been forfeited by the operation law - in terms of section 47 of the customs ordinance - as the particulars provided in the bill of entry or customs declaration, disagreed with the particular of the goods imported against it. Therefore, the Customs officers had seized nine such vehicles, held with the importer at the time of raid conducted by customs, in terms of section 125 of the customs ordinance, which had been the practice followed according to law in similar cases all this time.


However, the importer Toyota Lanka, challenged the forfeiture before the Court of Appeal [CA application No 2118/2005]. Yet, the Court of Appeal refused their application that was obviously manifestly unfounded. Then the importer challenged the decision of the Court of Appeal before the Supreme Court, and which was taken up by former CJ himself.


Arguments for fraudsters by PC


At the hearing, the respondent, Toyota Lanka whose bill for the lawsuit was over 30 million rupees was represented by the PC which we believe should catch the attention of the Inland Revenue to explore what income declaration made by PC for the tax purposes for the year 2008/2009. PC argued that “seizure of vehicles by the customs officers are purely reward oriented” and that attitude had induced the officers of their the “overzealous” action in effecting the seizure and imposing penalties, whereas the proper cause of action would have been to recover the amount of revenue defrauded by the importer, under the provisions of section 18 of the Custom Ordinance, which was argued the “due process of law.” Counsel, further argued that, in event amount defrauded by the imported had been recovered under the section 18 of the Customs Ordinance, the entire quantum so recovered would have been credited to the revenue, not just 30% of the proceeds, had they been forfeited as the other 70% would have been credited to the reward fund and to the compensation fund - created by the law to encourage the revenue fraud preventive officers to enforce the Customs law effectively against the organized revenue fraudsters.


Counsel reinforced his argument with an allegation leveled against the officers, whose actions, in fact, would have recovered additional revenue by way of further forfeitures imposed on the importer for knowingly defrauding the government revenue and proceeds of crime that would have realized from the disposal of the vehicles forfeited by operation of law, in the case. Further, if not for the undue and irrational judicial intervention and creation of a bad law by the former CJ, the fraud preventive action by the officers would have clearly made the importer to think twice before committing similar fraudulent act in future that would cost them dearly, with stringent deterrents measures in place against such unlawful actions.


Counsel argued further that the customs officers resort to procedure of seizure of good even after “goods are examined passed by the Customs Officers”, in view of the reward scheme, where the officers are awarded financial rewards from the proceeds of revenue crimes collected by way of forfeitures, penalties and fines imposed on revenue fraudsters. He “enlightened the CJ, that in terms of the section 153, only 30% of total proceeds of revenue crimes are credited to the revenue and other 70% is goes to the reward fund and to the compensation fund – which we say is created by law to ensure effectiveness of the management of the Customs law and procedure. However, it was very unfortunate that neither the CJ nor the AG realized that if not for the preventive measure initiated by the revenue fraud preventive officers, nothing at all would have materialized by way of additional duty or proceeds of crime, generated from the disposal of the goods confiscated, a clear deterrent sanctioned by law to curb government revenue frauds.


Former CJ’s creation of bad law


The former CJ, refused to consider the submissions by the State that misdescription of the goods would be a fraudulent act on the part of the importer and the mere recovery duty so defrauded is not an adequate deterrent. The CJ, simply relied on the submissions of the Counsel and held that the actions of the customs officers is manifestly illegal and the proper cause of action would have been the recovery of revenue defrauded by the importer in terms of section 18 of the customs ordinance, in which case nothing would go the officers who initiated action against the revenue fraudster but the whole proceeds would go to the revenue. We, the Customs Whistleblowers, concerned with the proper enforcement of the Customs law, state with full responsibility that the bad law created by the former Chief Justice, is manifestly unfounded and irrational for number of reasons that are set out below.


Why the former CJ running is bad in law


Firstly his interpretation of sections 18, 47 and 125 of the Customs Ordinance is manifestly wrong. We, the Customs Whistleblowers can not thing of any reasons as to why the former CJ, unless he action motivated by some other consideration that best known to him, applied the provisions of section 18 of the Customs Ordinance in this case, which has nothing to do in cases where the revenue is defrauded by any person. His reasoning given for adopting the provisions of the section is manifestly unfounded. The new law created by the CJ that “proper course of action would be a requirement for payment for the amount due prior to delivery of goods or the recovery of the amounts due in terms of Section 18” is manifestly wrong and not the intention of the lawmakers, that imposed stringent measures against any form of defrauding of government revenue. The purpose of the provisions set out in Section 18 is to recovery of duties or charges short levied or erroneously refunded on a claim for refund of customs duties and the provisions of section 18 has no application whatsoever, in situation where there is a revenue fraud committed by any person, as in this case, where the importer had made a wrong classification with intend to defraud the government revenue. On the other hand the provision of law the former CJ talked about, is a relatively new amendment to the powerful Customs Law that was brought into operation well over 150 years ago and enforced fairly and squarely against all forms of revenue frauds. If the CJ’s interpretation of the Customs Law is the correct analysis, then what he implies is that from 1974 onwards - the year the amendment to section 18 that came into being, on what the CJ wholly relied upon - the law has been changed to facilitate the government revenue fraudsters.


The role played by the DGC, in this scam


We, the Customs Whistleblowers, say with full responsibility that this whole saga is a well calculated fraud committed by the former CJ, PC, assisted by the DGC, who had deliberately prevented the second Respondent in this case, the head of motor car unit, from making an affidavit to the Supreme Court, setting out the modus operandi of this fraud and the collusive action by the officers appointed to examined the vehicles before release. The second Respondent is the best person who is qualified to say that if not for the timely action taken by the fraud preventive officers, the government would have incurred a massive revenue loss as a result of the collusive actions by the officers appointed to examine the vehicles before release, with the revenue fraudster.


In terms of the Customs Ordinance, the primary duty vested in the DGC and the other officers of customs, is to protect the government revenue [Section 137 of the customs Ordinance]. We, the Customs Whistleblowers, say that DGC was under duty to initiate immediate investigation into this fraud after it had been detected by the third respondent P Saman de Silva, the fraud investigation officer and the third Respondent in the case. The DGC should have identified the officer or officers colluded with the revenue fraudster and passed the vehicles under wrong classification that attract lower rate of duty. In this case, the DGC was also under duty to deal with the officers responsible for the defrauding of the government revenue, under the provisions of 137 of the Customs Ordinance which require dismissal of the officers involved in the revenue fraud.


We, the Customs Whistleblowers, say that the DGC’s inaction in this case is deliberate and intentional and we say that the DGC is simply an accessory in this scam. Had he performed his legal duty, that would have exposed the fraudulent act on the part of the importer, and there would not have been any opportunity for the revenue fraudster to bring an action before the Court of law seeking a Writ against the officers who conducted enforcement action against the revenue fraudster. By his deliberate inaction the DGC, let the CJ, to exploit the absence of any statement by way of affidavit, by the second respondent, presence of which would have given no room at all to the CJ, to abuse his authority and to allow the Writ against the officers enforced the law against the revenue fraudster.


The CJ, in his ruling stated that “… the 2nd Respondent had not filed an affidavit and hence had denied the contention of the Appellant that the vehicles were examined by the 2nd Respondent prior to release…” It was stated further in the ruling that the “… 2nd Respondent has not stated anywhere the he me made a mistake… ” We, the Customs Whistleblowers say with full responsibility that refusal of a affidavit by the 2nd Respondent is a part of the well planned conspiracy that cooked up to facilitate the revenue fraudster.


It is very unfortunate that former CJ, like many other controversial decisions by him, had favored the government revenue fraudster in this case, having fully aware that he would open the floodgates for the revenue fraudsters with his irrational ruling. We invite every law abiding citizen to examine the so-called ruling by the former CJ that is reproduced in our webpage, which demonstrate his collusion with the revenue fraudster that is quite obvious to any lay person who reads his ruling.


He knew the gravity of the fraud committed by the importer and the total revenue defrauded by the importer. Therefore, we say that in his ruling he had been very careful not to utter a word about the total amount of government revenue the importer defrauded that is well over one hundred and nineteen million rupees [Rs. 119,520.000.00].


If not for some form of interest in this case, which is obvious by the manifestly unfounded reasoning given to justify his ruling, the proper course of action would have been to affirm ruling given by the the Court of Appeal and to issue a show cause notice on the Director General of Customs for the failure in part to take action as required by law that are set out below.


1. Demand the DGC, to show cause for his inaction against the officers responsible for releasing the goods in the very first instance, in terms of section 137, which attract an imposition of a forfeiture of Rs 100,000.00 on the officer or officers involved in this case and their dismissal from the Customs Service.




2. Demand the DGC to show cause as to why he failed to submit a affidavit from the second respondent in the case, the Deputy Director of Customs, giving reasons for failure on his part to seize the vehicle when they are presented for examination with a bill of entry that clearly disagreed with the vehicles


Take measures to close floodgates opened for fraudsters by the former CJ


We, the Customs Whistleblowers, still have not lost the trust in the reelected Peoples’ President Mahinda Rajapakse, who promised to devote his second term to eradicate bribery and corruption in all institutions. In this particular case the damage caused by the bad law created by the former CJ, has several extremely damaging ramifications. Therefore, demand the people to set up an awareness campaign with a view to urge the President Rajapakse to intervene immediately to arrest the deplorable situation created by the bad law that has effectively negated the Statute, the Customs Ordinance. We urge the President to initiate action to bring a revision application to the Supreme Court to nullify the bad law created by the former CJ, which brought in the following ramifications.


1. In effect, as a result of the CJ’s bad law, the importers are encouraged to defraud the government by resorting to follow any fraudulent mythology and the Customs have already experienced heavy revenue loss due to false declarations, misdescription of goods and under statement of valuation of goods.


2. Thanks to CJ’s irrational ruling, the power vested in the officers by the section 125 of the Customs Ordinance have been completely nullified and negated. And no goods on which government revenue has been defrauded and hence forfeited by operation of law can be seized by customs any more and such action have been declared ultra vires ipso facto.


3. In the event any fraud is detected by frauds preventive officers, after released of goods, the importer can simply get away from effect of the operation of law against them. The goods so imported by unlawful means and thereby forfeited by operation of law are no more considered forfeited by the operation of law.


4. Now, with the bad law created by the former CJ, a new precedence has been set up. And the revenue fraudsters are encouraged to exploit the bad law to their advantage and maximize the defrauding of the government revenue. In the very unlikely event of been detected, now the fraudsters are allowed to pay the amount of government revenue so defrauded to customs and get away from forfeiture of goods and further forfeitures that would have been imposed on them for knowingly concerned in defrauding the government revenue.