2013 (6) TMI 348 - HC - Customs

Import of prohibited goods - denial of the Customs duty concessions under Indo-Thailand Free Trade Agreement - Unbranded gold jewellery seized - demand from the petitioner-Company of differential Customs Duty proposing to levy interest u/s 28AA and proposing to confiscate the seized gold jewellery - petitioner alleged to be wrongly availing the benefit of exemption under the Custom s Notification No.85/2004-Cus. dated 31.08.2004 read with Custom s Notification No.101/204-Cus.(N.T.) dated 31.08.2004 and thereby had been evading the payment of appropriate duty - Held that - A perusal of the impugned Show Cause Notice would reveal that the respondents have proceeded against the petitioner on evading payment of Basic Customs Duty on the import made by the petitioner by wrongfully availing exemption on the basis of the Certificate issued by the Kingdom of Thailand. Though the impugned Show Cause Notice is issued under Section 124 of the Customs Act the relief sought by the petitioner is only for the issuance of a Writ of Prohibition prohibiting the respondents from proceeding with the adjudication of the said Show Cause Notice. In the instant case it is admitted that the Government of India has written to the Kingdom of Thailand about the issuance of Certificate to the petitioner for availing exemption and the respondents are awaiting reply from the Kingdom of Thailand. Notwithstanding the outcome of the decision of the sovereign authority namely the Kingdom of Thailand the respondents have got power to initiate proceedings against the petitioner. A reading of Section 124 of the Customs Act would make it clear that the respondents are empowered to issue show cause notice and proceed against the person alleged to have committed fraud stating the ground on which they have initiated the proceedings. The respondents have substantiated that there was wrongful availment of exemption by the petitioner contrary to the law of our country and therefore they have invoked Section 124 to issue the impugned show cause notice. When such things are substantiated as there is no prohibition in the said provision not to proceed against the importer who has availed wrongful exemption of duty this Court cannot restrain the respondents from proceedings further unless there is anything contrary to law. Therefore it is for the petitioner to go before the respondents explain the case and request them to stall the proceedings till a decision is taken by the government authorities of the Kingdom of Thailand. Section 124(a) of the Customs Act contemplates that no order confiscating any goods or imposing any penalty on any person shall be made under the Chapter unless the owner of the goods or such person is given a notice in writing with the prior approval of the Officer of Customs not below the rank of an Assistant Commissioner of Customs informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty. Such a provision has been followed by the authorities in this case. Therefore there is no scope to prohibit the respondents from proceeding further. Accordingly the petitioner is directed to submit his explanation to the impugned show cause notice dated 14.11.2012 within a period of four weeks from today in which event the respondents viz. the authorities concerned shall look into the same but not take any final decision thereon. Also the respondents shall maintain status quo as on date till the conclusion of the proceedings.

The core legal questions considered by the Court include:

1. Whether the issuance of the Show Cause Notice under Section 124 of the Customs Act, 1962, by the respondents is legal and within jurisdiction, given that the goods were already cleared under Section 47 of the Customs Act.

2. Whether the petitioner's import of unbranded gold jewellery from Thailand, under the Indo-Thailand Free Trade Agreement (FTA), was in compliance with the statutory requirements, including the validity of the Certificates of Origin and the applicable customs notifications.

3. Whether the respondents were entitled to initiate original adjudication proceedings and seizure of goods despite prior clearance by Customs authorities.

4. The extent of the authority of Customs officials to proceed against the petitioner for alleged fraudulent claims of duty exemption under the FTA, including the applicability of revisional powers under Section 129D versus original proceedings under Section 124.

5. The legal effect of the ongoing investigation with the government authorities of the Kingdom of Thailand on the adjudication proceedings initiated by the respondents.

Issue-wise Detailed Analysis

1. Legality and Jurisdiction of Show Cause Notice under Section 124 after Clearance under Section 47

The Customs Act, 1962, provides under Section 47 that goods entered for home consumption can be cleared by the proper officer once duty is paid and the goods are not prohibited. The petitioner's goods were cleared under this provision after submission of Bills of Entry and Certificates of Origin.

However, the respondents issued a Show Cause Notice under Section 124 alleging wrongful availment of exemption under the Indo-Thailand FTA and proposing confiscation and penalty.

Relevant precedents cited by the petitioner include rulings that once goods are cleared under Section 47, the proper recourse for the revenue is to invoke revisional powers under Section 129D rather than initiate fresh adjudication proceedings under Section 124. Cases such as Decor India and Ors. vs Collector of Customs and Ajay Exports vs Collector of Customs emphasize that the finality of clearance under Section 47 cannot be disturbed by fresh proceedings unless fraud or suppression is established.

The respondents contended that the fraudulent nature of the imports justified original proceedings under Section 124, and that an order obtained by fraudulent means does not preclude initiation of confiscation proceedings.

The Court noted that Section 124 empowers the authorities to issue show cause notices where fraud is alleged, and that no provision bars initiation of proceedings pending resolution with foreign authorities.

Thus, the Court recognized the legal tension between finality of clearance and the power to act against fraud but held that the respondents were empowered to proceed under Section 124 subject to the outcome of the investigation.

2. Compliance with Indo-Thailand Free Trade Agreement and Validity of Certificates of Origin

The petitioner claimed full compliance with the statutory formalities under the Indo-Thailand FTA, including submission of original Certificates of Origin issued by designated authorities in Thailand, and payment of Special Additional Customs Duty of 1% as mandated.

The respondents alleged that the petitioner fraudulently imported gold jewellery manufactured outside Thailand (Singapore and Dubai), misusing the exemption under the FTA. They contended that the imported goods did not satisfy the Rules of Origin, particularly Rule 6(b) and Rule 15(c) of the Interim Rules of Origin, which require a change in classification at the 4-digit tariff level and local value addition.

Evidence cited by the respondents included voluntary admissions by suppliers, email correspondences, and the fact that the Certificates of Origin indicated a "4 digit + 22%" origin criterion, which was allegedly not met in substance.

The respondents also pointed out that the petitioner suppressed material facts from Customs authorities and filed Bills of Entry claiming exemption knowing the goods were not eligible.

The Court acknowledged the serious allegations of fraud and the ongoing investigation, but did not conclusively rule on the factual disputes at the interlocutory stage.

3. Authority of Customs Officials and Jurisdictional Issues

The petitioner challenged the jurisdiction of the 2nd respondent to issue the Show Cause Notice, relying on precedents that proper officers within the jurisdiction of import must issue notices under Section 28(1) and that audit officers outside the jurisdiction may lack competence for such notices.

The respondents justified the issuance based on intelligence and investigation revealing a fraudulent scheme, asserting that the 2nd respondent acted within powers granted by the Customs Act and notifications.

The Court observed that while jurisdictional competence is important, the ongoing investigation and prima facie evidence of fraud justified the issuance of the Show Cause Notice by the concerned authority.

4. Treatment of Fraud Allegations and Effect of Foreign Government Investigation

The respondents emphasized that the investigation revealed a premeditated fraudulent scheme involving collusion with foreign suppliers to misuse the FTA benefits, which justified seizure and confiscation proceedings.

The petitioner argued that the ongoing communication with the government of Thailand and pending response on the validity of Certificates of Origin should restrain the respondents from proceeding.

The Court held that the law of the country is supreme and does not prevent authorities from initiating action pending foreign government response. The respondents' action was "without prejudice" to the investigation with the Kingdom of Thailand.

The Court directed the respondents to maintain status quo and not take final decisions until the position is clarified by the foreign authorities, while allowing the petitioner to submit replies to the Show Cause Notice.

5. Procedural Fairness and Access to Documents

The petitioner complained that documents seized during the search were not returned nor copies allowed, and that statements made during summons proceedings were not acknowledged or provided to the petitioner.

The Court did not specifically rule on these procedural grievances but implicitly recognized the petitioner's right to respond to the Show Cause Notice and directed maintenance of status quo pending final adjudication.

Significant Holdings

"It is settled law that the goods cleared under Section 47 of the Customs Act, 1962 cannot be confiscated except in contemplation of an order or in pursuance of an order passed in revision under Section 129D of the Act."

"Section 124(a) of the Customs Act contemplates that no order confiscating any goods or imposing any penalty on any person shall be made under the Chapter unless the owner of the goods or such person is given a notice in writing with the prior approval of the Officer of Customs not below the rank of an Assistant Commissioner of Customs, informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty. Such a provision has been followed by the authorities in this case."

"Though the respondents have taken a specific stand that their action is subject to the outcome of the investigation that has been taken up with the appropriate authorities of the Kingdom of Thailand, the law of this country does not prevent the respondents from initiating any action against the petitioner."

"The said Show Cause Notice cannot be interfered with."

"The petitioner is directed to submit his explanation to the impugned show cause notice... in which event, the respondents... shall look into the same, but not take any final decision thereon... the respondents shall maintain status quo as on date till the conclusion of the proceedings."

The Court established the principle that while clearance under Section 47 ordinarily precludes confiscation, this is subject to the exception of fraud or suppression of facts, which empowers authorities to initiate original proceedings under Section 124. The Court also affirmed the supremacy of domestic law in permitting initiation of proceedings even pending foreign government investigation, subject to procedural safeguards and maintenance of status quo.

Finally, the Court held that the petitioner was entitled to respond to the Show Cause Notice and that the respondents must await the outcome of the investigation with the Kingdom of Thailand before concluding the matter.

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