ISLAMABAD: Federal Tax Ombudsman Zafar ul Haq Hijazi has found administrative negligence in the handling of a customs auction refund dispute and directed the Federal Board of Revenue (FBR) to ensure an early refund for three auction lots after the Customs Department itself admitted that the goods had deteriorated during prolonged storage.
The case relates to a customs auction worth Rs72.89 million held in Karachi on February 13, 2024, in which used clothing and household items were sold through 42 auction lots.
In a review order dated November 11, 2026, the Ombudsman recommended that the FBR direct the Collector of Customs, Appraisement (SAPT), Karachi, to refund the amounts received against three fully paid auction lots and submit a compliance report within 30 days.
The Ombudsman observed that the Customs Department had failed to bring the matter to a timely and reasonable conclusion despite acknowledging that the goods in the three disputed lots were in poor condition.
According to the official record, the goods had developed an unpleasant smell, while several bales had become loose due to prolonged storage. The department had also expressed its willingness to refund the amounts collected against these lots.
The Ombudsman noted that the delay in resolving the matter reflected administrative inattention, particularly when the department’s own examination had confirmed the condition of the goods.
The dispute began when Karachi-based businessman Abdul Ahad, son of Muhammad Naeem, purchased 42 auction lots of used clothing and household items with a combined bid value of Rs72,894,900.
The complainant took delivery of 30 lots but later approached the authorities seeking cancellation of the remaining 12 lots, comprising 16 containers.
He maintained that after opening the containers already received, he found that the goods were damaged, had deteriorated and were no longer suitable for commercial use.
Fearing that the remaining goods might be in a similar condition, the purchaser requested cancellation of the outstanding auction lots and refund of the money deposited against them.
However, the Customs Department maintained that the matter had been examined according to the auction records, payment details and physical condition of the goods.
In its response dated August 24, 2026, the department informed the Ombudsman that refunds had already been made for four lots against which the purchaser had deposited only 25 per cent of the bid amount as advance payment.
The department also acknowledged that three fully paid lots had deteriorated and agreed that the payments received against them could be refunded.
However, Customs refused to refund the amounts paid for the remaining five lots, stating that their condition did not justify cancellation or repayment.
The department further maintained that the purchaser had failed to collect those five lots despite repeated notices and reminders.
The complainant had earlier approached the department through a representation dated June 1, 2024, and continued correspondence with the authorities over the dispute.
The Federal Tax Ombudsman initially closed the proceedings on September 15, 2026, because the complaint was considered to have been filed beyond the legally allowed time.
The complainant later sought reconsideration of the decision and referred to his earlier complaint and correspondence with the department.
In its response dated October 21, 2026, the Customs Department maintained its previous position.
During the review proceedings, the complainant’s representative limited the refund claim to eight identified lots involving a total amount of Rs15,471,950.
The hearing was held on November 11, 2026, with representatives of both the complainant and the Customs Department appearing before the Ombudsman.
After examining the record and hearing the arguments, the Ombudsman observed that customs auctions are conducted on an “as is where is” basis under Rule 65 of the Customs Rules, 2001.
Under these conditions, buyers are expected to examine the goods as far as reasonably possible before placing their bids and must follow the payment and delivery terms after a bid is accepted.
The Ombudsman clarified that a buyer cannot cancel an accepted auction purchase simply because the goods later appear less valuable or commercially unattractive.
He further observed that concerns about the condition of goods already collected could not automatically justify cancellation of other auction lots without clear evidence about their actual condition.
The Ombudsman also noted that the purchaser was required to collect the five remaining fully paid lots after they had been made available for delivery.
The Customs Department had maintained that these goods were not found to be in a condition that justified a refund, and the complainant had failed to provide sufficient evidence to establish otherwise.
The Ombudsman, therefore, found no justification for allowing refunds against those five lots.
However, the position concerning three other lots was different because the department’s own examination confirmed that they had deteriorated during storage.
The three lots identified for refund were S 67/SEP/21, S 72/MAR/21 and S 53/SEP/21.
The Ombudsman observed that the department had already acknowledged the poor condition of these goods and had agreed to return the payments received against them.
He further noted that conducting another physical inspection after nearly two years would not reliably establish the original condition of the goods or determine responsibility for any deterioration that occurred later.
The Ombudsman concluded that the department’s failure to settle the refund issue involving the three acknowledged damaged lots justified limited intervention under Section 10(3) of the Federal Tax Ombudsman Ordinance, 2000.
He recommended that the FBR direct the concerned Collector of Customs in Karachi to refund the amounts paid against the three lots without further unnecessary delay.
The FBR was also required to submit a report confirming compliance with the recommendation within 30 days.
The Ombudsman made it clear that the decision did not give successful auction bidders a general right to cancel purchases merely because they were dissatisfied with the goods after completing a transaction.
The order accepted the refund claim only where the department’s own record supported it, while rejecting the claim concerning the remaining five lots.
The review proceedings were subsequently concluded.
