2025 (5) TMI 1049 - HC - Customs

Seeking grant of application for license for Private Warehouse under section 58 along with permission to carry out the manufacturing activities under section 65 of the Customs Act 1962 - distinction between the contravention and offence - what is the offence under the provisions of the Central Excise Act or Customs Act - HELD THAT - It appears that the respondents have failed to consider the offences under various indirect taxes Act and mixed up with the concept of contravention or breach of any of the provisions of the Act with the offences as enumerated in various Acts. Therefore merely because the litigation is pending for any contravention of any of the provisions of the Act same cannot be considered as an offence and there is a distinction between the contravention and offence of the Act which can be distinguished as under. Considering the litigations pending against the petitioner in the appellate forum none of the provisions can be said to be an offence which can be considered falling under clause(c) of para 3(2) of the Regulation. It is also pertinent to note that the petitioner or any of the officers director etc. of the petitioner has never been penalised for an offence under the Act as the same is not even disputed by the respondents by invoking the provisions of said para 3 (2) (c) of the Regulation. The respondents in both the occasions i.e. while rejecting the applications dated 06.02.2025 and 12.03.2025 has only referred to the provisions of para 3 (2) (c) of the Regulations referring that there are three cases pending against the petitioner under the Customs Act and 9 cases under other Acts i.e. Central Excise Act and GST Act without considering as none of the cases are pending for penalising the petitioner or any officer of the petitioner company for the offences under the Customs Act 1962 and other Acts. Thus the petition succeeds and is accordingly allowed. The impugned orders are hereby quashed and set aside. The respondents are directed to issue the license under the provisions of the Regulation as prayed for by the petitioner if further conditions are fulfilled except para 3 (2) (c) of the Regulation. Such exercise shall be completed within a period of two weeks from the date of receipt of a copy of this order

Summary

The core legal questions considered by the Court include: (i) whether the rejection of the petitioner's application for a Private Warehouse license under section 58 of the Customs Act, 1962 and the Private Warehouse Licensing Regulations, 2016, specifically para 3(2)(c), was legally justified; (ii) the interpretation and applicability of the term "penalised for an offence" under the Customs Act, Central Excise Act, and Finance Act as stipulated in para 3(2)(c) of the Regulations; (iii) whether pending litigations involving the petitioner amount to offences that disqualify the petitioner from obtaining the license; and (iv) the distinction between "contravention" and "offence" in the context of indirect tax laws and their relevance to licensing decisions.

Regarding the first issue, the relevant legal framework comprises section 58 of the Customs Act, 1962, which governs licensing for private bonded warehouses, and the Private Warehouse Licensing Regulations, 2016, particularly para 3(2)(c). This provision prohibits issuance of a license if the applicant "has been penalised for an offence under the Act, the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994." The Court examined the impugned orders dated 06.02.2025 and 12.03.2025, which rejected the petitioner's application citing this clause.

The Court analyzed the petitioner's pending litigations under various indirect tax laws, including the Customs Act, Central Excise Act, and Finance Act. Detailed scrutiny of the show cause notices, appeals, and penalty sections invoked revealed that none of the cases involved offences as defined under the respective Acts, but rather alleged contraventions or breaches of general provisions. For instance, penalty provisions such as section 112(a)(ii) and section 114A of the Customs Act invoked are penalties for contraventions, not criminal offences under Chapter XVI of the Customs Act (sections 132 to 140A). Similarly, penalties under the Finance Act and Central Excise Act were for contraventions and not offences attracting criminal liability.

The Court further referred to authoritative definitions to clarify the legal distinction between "offence" and "contravention." Drawing from Black's Law Dictionary, "offence" was defined as a violation of law constituting a crime, including misdemeanors and felonies, often punishable by criminal sanctions. In contrast, "contravention" was understood as a mere breach or non-compliance with statutory provisions, which may attract penalties but not criminal prosecution or conviction. This distinction was pivotal in interpreting para 3(2)(c) of the Regulations, which explicitly bars applicants penalised for offences, not those involved in pending litigations for contraventions.

The respondents' reliance on Circular No. 26/2016-Customs and Circular No. 34/2019-Customs was considered. These circulars prescribe procedures for antecedent verification and require declarations from applicants regarding convictions or prosecutions for offences. The Court noted that the petitioner had submitted declarations and undertakings affirming no penalisation for offences, and the pending litigations did not involve offences but only contraventions. The respondents' rejection based solely on the existence of pending cases without establishing offences was therefore found to be misplaced.

The Court emphasized that the respondents had failed to distinguish between offences and contraventions, thereby misapplying para 3(2)(c). The legal principle established is that mere pendency of litigation or imposition of penalties for contraventions does not amount to being "penalised for an offence" under the Customs Act or allied laws, and thus cannot justify denial of a private warehouse license under the Regulations.

On the application of law to facts, the Court observed that none of the pending cases against the petitioner involved offences under sections 132 to 140A of the Customs Act or equivalent provisions in the Central Excise or Finance Acts. The petitioner was not convicted or penalised for any offence, nor was there any prosecution for such offences. The respondents' rejection of the license application on the ground of para 3(2)(c) was therefore not sustainable.

Competing arguments were addressed with the Court giving weight to the petitioner's submissions supported by detailed documentation of pending litigations and their nature, and the respondents' reliance on circulars and antecedent checks. The Court rejected the respondents' broad interpretation of "penalised for an offence" to include mere contraventions or pending litigations, holding that such an interpretation would be contrary to the plain language and intent of the Regulations.

In conclusion, the Court quashed and set aside the impugned orders rejecting the petitioner's application. It directed the respondents to grant the private warehouse license if other conditions under the Regulations are met, excluding the disqualification under para 3(2)(c) which was found inapplicable. The Court mandated completion of this exercise within two weeks from receipt of the judgment.

Significant holdings include the following verbatim legal reasoning: "...the respondents have failed to consider the offences under various indirect taxes Act and mixed up with the concept of contravention or breach of any of the provisions of the Act with the offences as enumerated in various Acts. Therefore, merely because the litigation is pending for any contravention of any of the provisions of the Act, same cannot be considered as an offence..." and "...none of the provisions can be said to be an offence which can be considered falling under clause (c) of para 3(2) of the Regulation."

The core principle established is the clear legal distinction between "penalised for an offence" and "contravention" under indirect tax laws, which must be strictly observed in licensing decisions under the Customs Act and Regulations. The final determination was that the petitioner's pending litigations do not disqualify it from obtaining a private warehouse license, and the rejection orders based on para 3(2)(c) were quashed accordingly.