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TMI Blog2013 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... and Appeal No. 13/2008 preferred by Customs Department. Since the impugned order is the same and the subject matter of dispute is also the same, we have heard common arguments of learned counsels for the parties and proceed to dispose of both the writ petitions by this common judgment. 2. Before we proceed to discuss the respective cases of the parties on merit, we wish to place on record our anguish about the failure of the parties concerned, i.e. the Customs Department, the MMTC and the Indian Bank to resolve the issues as raised in these petitions on their own, even though they all represent the State. On 14.11.2011, we had put it to counsel for the parties as to why the concerned Secretaries of the Govt. of India in the Ministry of Finance and the Ministry of Commerce should not sit together to resolve the issues. On 07.12.2011, we directed that the concerned Secretaries of the two Ministries should endeavor to work out an amicable resolution of the disputes, as all the parties are under the control of one or the other Ministries. In fact, the petitioners had sought time for the said purpose repeatedly, and on 20.07.2012 we had expressed the hope that since the matter is not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final product would be exported by them in a time bound manner and that the manufacturer would not create any encumbrance or charge of the said goods in favour of anyone else. The property in the gold and silver was not to vest in the exporter till the final product was exported. 5. It appears that about 45 kg. of gold was loaned by the MMTC to one Mr. Surjit Singh Kanda, (respondent No. 1 in WP(C) No. 2063/2011), who was carrying on his business under several business names, viz., Pearl Jewellers, Ramson Jewellers and Raja Jewellers Limited, for manufacture and export of gold jewellery. Out of the said quantity, it appears that Sh. S.S. Kanda exported gold ornaments of 26 kgs., but failed to export ornaments of the remaining about 19 kgs. It also appears that S.S. Kanda in breach of the conditions imposed by the MMTC, pledged the gold with Indian Bank - respondent No. 4 in WP(C) No. 2063/2011, and respondent No. 1 in WP(C) No. 4553/2011, to obtain credit facilities. The exporter Shri S.S. Kanda also hypothecated the plant and machinery, apart from the gold and gold jewellery with Indian Bank for obtaining the credit facilities. Shri S.S. Kanda was a Non-Resident Indian settled in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge/lien over the hypothecated stock of gold and jewellery as well as the plant & machinery between the applicant and the respondents No. 3 & 4?" The DRT while holding that the MMTC had the first charge over the said gold in its discussion observed as follows: "Issue No.6 In the evidence by way of affidavit of Shri M. Ravinder & documents filed by the defendant nos. 4, it has been stated that the defendant no.4 (MMTC) after satisfying that Shri Surjit Singh Kanda is a manufacturer and exporter of gold and is registered by the NOIDA Export Processing Zone, issued gold on loan to Shri Surjit Singh Kanda from time to time. MMTC issued gold to him on the recommendations of the Development Commissioner, NEPZ, NOIDA and the present claim is only with respect to 19 kgs of gold. On issuance of gold, Shri Surjit Singh Kanda signed and executed 'letters of undertaking' each time. It has been further stated that Shri Surjit Singh Kanda was issued 45 Kgs of gold out of which he manufactured jewellery of 26 kgs. Of gold and executed 'letters of undertaking' from time to time. The jewellery manufactured out of remaining 19 Kgs of gold was never exported. MMTC realized payment with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im that defendant no.4 was given 19 kg. gold through five transactions. So the gold seized by the Custom Department is having first charge of MMTC. Accordingly, the first part of the Issue no.6 regarding the gold of 19 kg is concerned, is decided in favour of defendant no.4. So far as jewellery, plant and machinery is concerned, this issue is decided in favour of the applicant bank." 9. The DRAT in the three appeals preferred by the MMTC (Appeal No. 166/2005), Indian Bank (Appeal No. 126/2005) and the Customs Department through the Assistant Commissioner of Customs (Appeal No. 13/2008) held that the claim of the Indian Bank will get precedence over the claims made by the MMTC and the Customs Department and that the Indian Bank has the first charge over the gold, silver and plant & machinery. While holding so, the DRAT has sought to place reliance on two decisions in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Another, (2007) 8 SCC 353; and, UTI Bank Ltd. Vs. Deputy Commissioner of Central Excise & Another, (2007) 135 Comp Cas 329 (Mad) (Full Bench). It is this finding which is assailed before us by the MMTC and by the Customs Department in their respective writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods, i.e., the imported gold can only be for the purpose of recovering the aforesaid amounts. Confiscation of the goods does not mean that the Customs Department can appropriate the property in the imported goods, even after recovering the entire duty, penalty and interest. It is submitted that the goods imported were not contraband items, whose import was prohibited under the law at the relevant time. The import of the gold was valid and legal. It was only on account of the then prevalent governmental scheme vide the aforesaid exemption notification that duty free import was permitted on the condition that the manufactured goods would be exported. The consequence of failure to export the goods would only be that the Customs Department would recover the customs duty, penalty and interest. It is submitted by Mr. Chhabra that the Customs Department has already recovered the aforesaid amounts, amounting to Rs.2.27 Crores towards the component of customs duty, penalty and interest and, consequently, they have no justification for staking claim over the recovered gold. 13. Mr. Chhabra points out that the Customs Department did not even bother to contest the proceedings before the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore granting the gold on loan. It is further submitted that the Indian Bank acted bona fide in granting loans & facilities against, inter alia, the gold at the factory premises of Sh. S.S. Kanda as the said bank had no reason to believe that Sh. S.S. Kanda did not have ownership over the said gold. 18. Having considered the rival submissions and perused the impugned order, we are of the view that the said order cannot be sustained and the finding returned by the DRAT that the first charge over the recovered gold is that of the Indian Bank, is liable to be set aside. We are also of the view that the finding returned by the DRT that the first charge over the said gold is that of the MMTC is a correct finding and, accordingly, we restore the same. 19. So far as the claim of the Customs Department is concerned, we fail to appreciate as to how the Customs Department can seek to pursue their writ petition. Not only the prayers made by them in their writ petition are vague, the submissions of the learned ASG are equally meritless considering the fact that the entire customs duty, penalty and interest in respect of the said gold already stands fully recovered. 20. We repeatedly called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Act provides that: "126. On confiscation, property to vest in Central Government. (1) When any goods are confiscated under this Act, such goods shall thereupon vest in the Central Government. (2) The officer adjudging confiscation shall take and hold possession of the confiscated goods." However, the said provision cannot be read in isolation and has to be read in conjunction with section 125 of the said Act, as aforesaid. Confiscation of imported goods (import whereof is not prohibited in law) is done only as a means to recover its dues by the Customs Department. It does not mean that the Department can appropriate the said goods forever, even when the penalty, duty and other charges are paid by the importer. Admittedly, the Customs Department has already recovered its entire customs duty, penalty & interest amounting to Rs. 2.27 Crores from the MMTC in respect of the 19 Kgs. of gold which was not utilized by Shri S.S. Kanda for export of jewellery. 23. That being the position, no further claim of the Customs Department in respect of the said gold can survive. Moreover, the Customs Department did not even bother to appear before the DRT to stake their claim on the recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing further that they could have done while giving the gold on loan, apart from requiring Sh. S.S. Kanda to furnish an undertaking that he shall not encumber or create any charge over the loaned gold. 26. Reliance placed by the DRAT on the aforesaid decisions appears to be wholly misplaced. Central Bank of India (supra) and UTI Bank Ltd. (supra) are both decisions, which proceed on the basis that the borrower has the ownership in the goods which are pawned/charged with the creditor bank. In these circumstances, the Courts examined the issue of priority of rights of the bank vis-à-vis the other creditors and held that the bank had the first charge over even crown debts. However, that principle cannot be applied in the present case as Sh. S.S. Kanda did not have ownership rights in the gold and did not create a valid pledge/hypothecation over the said gold in favour of the Indian Bank. 27. Since the only issue considered by us is with regard to the right over the said gold, we have not been called upon to adjudicate the rights of the Auction Purchaser in respect of the other assets of Sh. S.S. Kanda and his three firms. 28. Accordingly, we set aside the impugned order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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