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Sheshank Sea Foods Pvt. Ltd., Karnataka v. Union Of India And Others
Factual and Procedural Background
M/s Kamath Packaging Ltd. imported raw materials duty-free under advance licences granted pursuant to the Duty Exemption Scheme and Exemption Notification No. 116/1988, issued under Section 25(1) of the Customs Act, 1962. One express condition of the notification was that the materials “shall not be sold, loaned, transferred or disposed of in any other manner.”
Customs officers began search and seizure operations on the allegation that Kamath Packaging had violated this condition. The company filed a writ petition in the High Court of Karnataka seeking a writ of prohibition to stop the search, contending that Customs lacked jurisdiction. A learned Single Judge dismissed the petition, and a Division Bench upheld that dismissal. The company then filed the present civil appeals, which were heard together by the Supreme Court.
Legal Issues Presented
- Whether the Customs authorities have statutory power under Section 111(o) of the Customs Act, 1962 to investigate and act upon alleged post-import violations of conditions attached to an exemption notification, notwithstanding parallel powers of the licensing authority under the Duty Exemption Scheme.
- Whether provisions in the Import and Export Policy, 1988-91 and the Handbook of Procedures oust or restrict the jurisdiction of Customs officers in such matters.
Arguments of the Parties
Appellants’ Arguments (Kamath Packaging Ltd.)
- The alleged violations concern utilisation of raw materials under advance licences; only the licensing authority created by the Duty Exemption Scheme can investigate such breaches.
- The Duty Exemption Scheme is a self-contained code. Bonds executed pursuant to licences expressly provide for action by the licensing authority, thereby excluding Customs jurisdiction.
- Paragraphs 231 and 243 of the Import and Export Policy, 1988-91, and Paragraph 374 of the Handbook of Procedures confine enforcement to the licensing authority when export obligations are not met or material is domestically sold.
- A 13-5-1969 Central Board of Excise & Customs (CBEC) circular advised that Customs action under Section 111(o) is inapplicable to post-import licence conditions, further evidencing lack of Customs jurisdiction.
Respondents’ Arguments (Customs Authorities)
- The imported goods enjoyed duty exemption subject to a condition prohibiting sale, loan, transfer, or other disposal; this condition forms part of the exemption notification.
- Section 111(o) expressly authorises confiscation where such a condition is breached; therefore Customs officers are empowered to search, seize, and pursue proceedings.
- Concurrency of power with the licensing authority does not negate Customs authority; both regimes may act independently.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court began with the text of Section 111(o), noting that it applies whenever goods have been exempted from duty “subject to any condition” and the condition is not observed. Because the exemption notification’s no-sale condition was allegedly breached, the statutory trigger for Customs action existed.
Examining the Import and Export Policy and Handbook of Procedures, the Court found “nothing that even remotely suggests” a removal or restriction of Customs powers. The fact that licensing authorities are empowered to investigate does not, by itself, displace Customs jurisdiction.
The 1969 CBEC circular was distinguished. Even if a breach of licence terms is involved, it simultaneously constitutes a breach of the exemption notification. Consequently, Section 111(o) remains applicable despite the circular’s observations on licence conditions.
The Court therefore rejected the contention that the Duty Exemption Scheme forms an exclusive or self-contained code barring Customs investigation. Parallel jurisdiction of both authorities was affirmed.
Holding and Implications
Appeals dismissed with costs.
The Supreme Court confirmed that Customs authorities may invoke Section 111(o) to investigate and confiscate goods when conditions attached to a duty-free exemption notification are violated, even if the same conduct is also actionable by the licensing authority under the Duty Exemption Scheme. The decision clarifies the concurrent jurisdiction of Customs and licensing authorities but does not create a new legal test or precedent beyond reaffirming statutory language.
S.P Bharucha, J.— The principal judgment was delivered by a Division Bench of the High Court of Karnataka in the case of M/s Kamath Packaging Limited (Civil Appeal No. 1153 of 1992). In the other matters the High Court followed the aforesaid judgment.
2. A writ petition was filed by M/s Kamath Packaging Ltd. before the High Court seeking a writ of prohibition restraining the Customs authorities from proceeding with search and seizure operations in their premises. The writ petition was dismissed by a learned Single Judge and the appeal therefrom by the Division Bench. The writ petition was filed upon the basis that the Customs authorities had no right or authority nor did the Customs Act, 1962 empower them to go into questions relating to the utilisation of the raw materials that had been imported by the appellants under advance licences granted to them under the Duty Exemption Scheme. It was the case of the Customs authorities that the raw materials had been imported by the appellants without payment of duty by availing of the benefit of an Exemption Notification dated 30-4-1988 (No. 116 of 1988). The terms and conditions thereof had been violated by the appellants. Search and seizure operations in this behalf were, therefore, within their powers.
3. The said exemption notification was issued in exercise of powers conferred by Section 25(1) of the Customs Act and one of the conditions thereof was that the materials exempted thereunder would not “be sold, loaned, transferred or disposed of in any other manner”.
4. Learned counsel for the appellant submitted that the investigation by the Customs authorities was in respect of alleged violations of the terms of the appellants' advance licences which incorporated the terms of the said exemption notification. Only the licensing authority had the jurisdiction to investigate the alleged violations. The Duty Exemption Scheme under which the licences had been issued was a code by itself and excluded any investigation by the Customs authorities. The bond that had been furnished by the appellants pursuant to the licences also provided for action by the licensing authority.
5. Our attention was drawn by learned counsel for the appellant in support of his aforestated submissions to the Import and Export Policy, 1988-91, wherein Chapter XIX dealt with the Duty Exemption Scheme. Para 231 stated that the licence-holder should, before clearance of the first consignment of import, execute a bond with the requisite value of bank guarantee or legal undertaking, as the case may be, with the licensing authority concerned in the prescribed form. Para 243 read thus:
“If a licence-holder fails to discharge the prescribed export obligation within the permitted time, the licensing authority shall initiate action against the licence-holder on the lines indicated in Chapter XIX of the Handbook of Procedures, 1988-91. This shall, however, be without prejudice to any other action that may be initiated by the Customs authorities for recovery of customs duty or other duties and interest thereon under Section 142 of the Customs Act, 1962.”
Learned counsel drew attention to the Handbook of Procedures, April 1988-March 1991, issued by the Ministry of Commerce, Government of India, Chapter XIX whereof also dealt with the Duty Exemption Scheme. Para 374 dealt with the consequences of a licence-holder failing to discharge the prescribed export obligation, either in full or in part. If this happened in such circumstances that “the licensing authority is satisfied that the exempt material has not been sold or misutilised for domestic production” the action that could be taken was set out. In learned counsel's submission, these provisions of the Import and Export Policy and the Handbook of Procedures showed that it was only the licensing authority which could investigate alleged cases of domestic sale of exempt material and the jurisdiction of the Customs authorities to do so was ousted.
6. Learned counsel placed reliance upon a communication to all Collectors of Central Excise issued by the Central Board of Excise and Customs on 13-5-1969, on the subject of whether, in the event of the contravention of a post-importation condition of an import licence, it was open to the Customs authorities to confiscate imported goods under Section 111(o) of the Customs Act. The said communication stated that before Section 111(o) could be attracted there had “to be an exemption, subject to a condition, from a prohibition”. Where a valid licence has been issued, it is not a case of an exemption from the prohibition. Therefore, if a post-importation condition of a licence is contravened, it cannot be said that any condition of exemption is contravened. For the reasons stated above, the Ministry of Law have advised that it may not be possible to take action under Section 111(o) with respect to the conditions of the licence relating to the use of goods after they are cleared from the customs charge.
7. Section 111(o) is the sheet-anchor of the respondents' case. It reads thus:
“111. Confiscation of improperly imported goods, etc.—The following goods brought from a place outside India shall be liable to confiscation—
(o) any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer.”
8. Section 111(o) states that when goods are exempted from customs duty subject to a condition and the condition is not observed, the goods are liable to confiscation. The case of the respondents is that the goods imported by the appellants, which availed of the said exemption subject to the condition that they would not be sold, loaned, transferred or disposed of in any other manner, had been disposed of by the appellants. The Customs authorities, therefore, clearly had the power to take action under the provisions of Section 111(o).
9. We do not find in the provisions of the Import and Export Policy or the Handbook of Procedures issued by the Ministry of Commerce, Government of India, anything that even remotely suggests that the aforesaid power of the Customs authorities had been taken away or abridged or that an investigation into such alleged breach could be conducted only by the licensing authority. That the licensing authority is empowered to conduct such an investigation does not by itself preclude the Customs authorities from doing so.
10. The communication of the Central Board of Excise and Customs dated 13-5-1969, refers to the breach of the condition of a licence and suggests that it may not be possible to take action under Section 111(o) in respect thereof. It is true that the terms of the said exemption notification were made part of the appellants' licences and, in that sense, a breach of the terms of the said exemption notification is also a breach of the terms of the licence, entitling the licensing authority to investigate. But the breach is not only of the terms of the licence; it is also a breach of the condition in the exemption notification upon which the appellants obtained exemption from payment of customs duty and, therefore, the terms of Section 111(o) enable the Customs authorities to investigate.
11. For these reasons, we find no merit in the appeals and dismiss them with costs.
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