Sri Lanka Readies Itself For Rs 619 Million Write-Off

• Customs Advises AG ‘severe’ fiscal loss to country
• Article 28(C) and Article 28(D) violated with impunity

By Faraz Shauketaly

In spite of valliant efforts by senior members of Sri Lanka’s Customs department led by respected civil servant, Mrs. Suddharma Karunarathna, it appears that Sri Lanka will lose out on a Rs 619 Million fraud. The Sunday Leader has highlighted this case a number of times, and some of our copy managed to stave off action from the higher echelons of power at Customs.
Further to our expose two weeks ago, the Director General of Customs, Suddharma Karunarathna, has written to the Attorney General, saying that Customs are not agreeable to the withdrawal of the appeal at the Supreme Court.

Stating that the advice given to Customs by the Attorney General’s (AG) department in November 2009 was different to the advice now being given, Customs were of the view that to withdraw the appeal from the Supreme Court was “not appropriate”. Mrs Karunarathna also told the Attorney General in her letter dated 3rd August 2010, that this matter was 10 years old and that Colombo Dockyard Ltd., had “evaded a colossal amount of fiscal levies”.
Our exposure on the Colombo Dockyard revenue fraud seems to have shaken the foundations of the three major pillars of the government: the Treasury, the AG’s Department and Customs. Now the Secretary to the Treasury, Dr PB Jayasundera has become the latest high profile figure to have been entangled in this scandalous ‘drama’ in which several other highly placed government officials are also involved.
On the 16th of August at a meeting called by the Treasury, at which the Customs were well represented, including by their chief, Director General Mrs Sudharma Karunarathna, Treasury Secretary Dr PB Jayasundera accused some officers at Customs of leaking information to the Sunday Leader. He instructed Customs to follow up on the Attorney Generals’ advice in spite of the fact that the Director General Customs had already written to the Attorney General taking up the fact that Customs had received conflicting advice from the AG. Dr Jayasundera was to remind the Customs officials that the AG was the government lawyer and they must follow the advice given by them.  This was also an attempt to shoot down the idea mooted by Customs investigators, to use the Private Bar to proceed with the matter, as they had appeared to have lost faith in the counsel being received from the AG’s department.
The reasons for the AG to withdraw from this case has outfoxed many a legal team. The crux of the matter is that the Court Of Appeal had failed to take notice of the disparity between the Toyota Lanka case and the Colombo Dockyard case. The case against Dockyard was about the willful evasion of Customs duties by the company whereas the Toyota Lanka case was about under payment of duties on goods that had been “mis-described”. The Toyota Lanka ruling itself clearly distinguishes the difference between the evasion of duty with that of duties under-paid or unpaid on goods “mis-described.” Mis-described is a customs term when the importer willfully does not describe the goods fully and pays a lower rate of duty.
For reasons best known to the AG, there was a sudden turn in their thinking in November 2009. He changed his mind at a high profile meeting [AG Mohan Peiris, Solicitor General Priyasad Dep, DGC Sarath Jayathilake, his Deputy ZAM Jazeel] held at the AG’s office and advises the DGC to proceed with the Customs Inquiry against Colombo Dockyard Ltd.  His advice is based on the grounds that the Court of Appeal ruling did not preclude the Customs from continuing the customs inquiry for defrauding  duties by Colombo Dockyard Ltd.
Between November 2009 and May 2010, ignoring the AG’s advice, the DGC, the Customs legal advisor ZAM Jazeel and Inquiry Officer Thilak Perera refused to initiate the inquiry proceedings which would have seen some action being taken against Colombo Dockyard.
Astonishingly though, by May 2010 the AG had retracted and changed his mind. He was now of the opinion that there was no mileage in pursuing the matter. As revealed exclusively in The Sunday Leader, the AG wrote to the Director General Customs, putting them on notice that he would withdraw from the case.
This caused serious and conscientious objections from the Customs department, who are convinced that the Court of Appeal had erred when they relied on both the Toyota Lanka and Vallibel cases to determine in favour of Colombo Dockyard. The new Director General Customs, Mrs Sudharma Karunaratna wrote immediately raising her objections to the withdrawal.
In what seems to be on the surface of it at least, an “open and shut” case,  of a company deliberately withholding fiscal levies already collected, documentation in our possession shows that Colombo Dockyard have in fact been paid these fiscal levies to the manufacturer.
Interference at very high levels has also contributed to the very real possibility that the state will now let go of a considerable sum of revenue. The imposition and application of Customs Law is not the purview of the Treasury Secretary, Dr PB Jayasundera. Yet he verbally uses his position of high office to inter-alia order the Director General of Customs, to follow the AG’s latest counsel on the matter. In short, he colludes, however much covertly, in assisting unsavoury elements to subvert and ignore Article 28(C) and Article 28 (D) of the Constitution of Sri Lanka. (faraz@thesundayleader.lk)

The case in a Nutshell

Colombo Dockyard Ltd [CDL], a BOI registered enterprise, sold 21 marine craft manufactured with BOI privilege locally, which is prohibited under the law.
The law requires that if CDL intends to sell any finished products locally, manufactured using raw material imported on a duty free basis, it should first apply for permission from BOI followed by Customs authorization and then pay all fiscal levies [Customs duties and other taxes] on the value of the goods – as  determined by the Customs on a bill of entry [Customs Declaration] furnished for Customs purposes.
On information provided by a private informant Customs revenue fraud preventive officers launched an investigation] in October 2000 into this transaction.
The investigation confirmed that CDL had unlawfully misappropriated the total duty component amounting to Rs 619,483,827  collected from the buyers of the 21 marine crafts sold locally without  BOI approval and Customs authorization.
The craft were sold to Sri Lanka Navy and Sri Lanka Ports Authority.
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Modus operandi adopted by CDL

CDL failed to apply for either BOI or Customs permission for the sale of 21 marine craft in the local market.
CDL included the duty component in the sale price of the marine crafts and recovered the total amount of fiscal levies amounting to Rs 619,483,827.00 from the purchaser.
CDL misappropriated the total amount of the fiscal levies so recovered, without remitting a single cent to the government revenue.