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Horizon Ferro Alloys Pvt. Ltd. And Others Petitioners v. Union Of India And Others S

Punjab & Haryana High Court

Jun 21, 2016

Judgment

Subsequent
References

CaseIQ

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Judgment Summary — M. Jeyapaul, J.

Factual and Procedural Background

The writ petition concerns seizure of three consignments (total 900 cartons) of cigarettes and restricted R-22 gas imported by concealment and by mis-declaration in three Bills of Entry filed at the ICD Ludhiana. The petitioners challenged procedural steps taken by the respondents, raising a substantial legal question on the interpretation and applicability of Section 4(2) of the Code and contending that the respondents were not following the procedures under Sections 154, 157, 167, 172 and 177 of the Code. The petitioners joined the Directorate of Revenue Intelligence (DRI) investigations and admitted mis-declaration, indicating willingness to pay differential duty and to approach the Settlement Commission for settlement.

Procedurally, reply was filed, counsel for both sides were heard, and interim orders previously placed on record and referred to an earlier order dated 13.06.2016. The petition sought relief including provisional release of seized goods; the Court considered submissions and affidavits (including an affidavit by the Commissioner of Customs computing duty liability).

Legal Issues Presented

Whether Section 4(2) of the Code is applicable in the facts of this case and how it should be interpreted.
Whether the respondents have followed the procedure prescribed under Sections 154, 157, 167, 172 and 177 of the Code, as contended by the petitioners.
Whether cigarettes and the restricted R-22 gas, imported by concealment but not expressly notified as "prohibited", attract the mandatory option to pay a redemption fine under Section 125 of the Customs Act, 1962, and whether provisional release under Section 110A is available.
Whether the Settlement Commission can entertain and settle the matter (including grant of immunities) in cases of concealment of imported goods such as cigarettes.
Which authority (DRI or the Commissioner of Customs at Ludhiana) is the proper adjudicating authority to determine the differential/customs duty in respect of the seized consignments.

Arguments of the Parties

Petitioners' Arguments

The petitioners challenged the applicability/interpretation of Section 4(2) of the Code and contended respondents were not following statutory procedures under Sections 154, 157, 167, 172 and 177 of the Code.
The petitioners admitted mis-declaration in the three Bills of Entry but sought provisional release by offering to pay the differential duty assessed on the cigarettes.
They proposed to invoke the jurisdiction of the Settlement Commission immediately upon issuance of a show cause cum demand notice, relying on the Commission's statutory power to grant immunities from penalty, fine and prosecution under the Customs Act, 1962.
The petitioners contended the seized cigarettes and restricted R-22 gas are not expressly "prohibited" for importation and therefore, under Section 125, the owner/importer is entitled to an option to redeem the goods on payment of redemption fine; Section 110A permits provisional release pending adjudication.
Because the goods are perishable, petitioners requested conditional provisional release rather than being relegated to litigate the provisional release issue before the respondents.

Respondents' / DRI Arguments

DRI contended that the seized goods (valued by them at about Rs. 10 crores) should be absolutely confiscated and destroyed and that such cases of fraud could not be settled by the Settlement Commission.
DRI raised an objection as to the territorial jurisdiction of the High Court, which the Court found without merit because the place of importation/declaration was Ludhiana.
Respondents doubted the genuineness of invoices submitted by the petitioners.
DRI asserted that it is the proper officer to issue notice under Section 28 and to determine assessment/duty liability; the Commissioner of Customs (Preventive), Amritsar, in an affidavit, however, took a different stance indicating that assessment/determination of duty would have to be done by DRI after issuing notice under Section 28.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bhargav B. Patel — CESTAT, Order dated 4.8.2015 (Appeal No. C/381/10-Mum; 2015-TIOL-1951-CESTAT-Mum)	In context of Section 125: held that unless importation/exportation is expressly "prohibited", the Adjudication Authority must offer the owner an option to pay fine in lieu of confiscation.	The Court relied on this decision to support the proposition that Section 125 obliges offering an option to redeem goods unless import is expressly prohibited.
Asian Food Industries — 2006 (204) ELT 8 (SC)	The Apex Court observed that the meaning of "prohibited" must be construed with reference to text and context; prohibition, restriction and regulation have different applications.	The Court cited this authority to underpin the interpretative approach that "prohibited" cannot be read to cover every violation so as to render the word "shall" in Section 125 meaningless.
Om Parkash Bhatia v. Union of India — 2003 (155) E.L.T. 423 (S.C.)	Applied a liberal definition of 'prohibited goods' in the context of Sections 111 or 113.	The Court noted that precedents applying Section 2(33) liberally in the context of Sections 111/113 do not automatically govern the applicability of the same definition for Section 125.
Sheikh Mohd. Omer v. Collector — 1983 (13) E.L.T. 1439 (S.C.)	Also applied a broader definition of 'prohibited goods' in relevant contexts (Sections 111/113).	Referenced to show that decisions applying Section 2(33) in the context of confiscation under Sections 111/113 are distinguishable from Section 125 context.
Ramesh Mehta v. Sanwal Chand Singhvi — (2004) 5 SCC 409	Principles of statutory interpretation regarding the phrase 'unless the context otherwise requires' for applying definitions (here, Section 2(33)).	The Court relied on these principles to conclude that the liberal definition of 'prohibited goods' (Section 2(33)) applied in Sections 111/113 should not be mechanically applied to Section 125.
Shaik Jamal Basha v. Government of India — 1997 (91) E.L.T. 277 (AP)	High Court held that in concealment cases (gold in that case) the adjudicating officer is under a mandatory duty under Section 125(1) to give the option to pay fine in lieu of confiscation.	The Court cited this decision as supportive authority for holding that in concealment cases where import is not expressly prohibited, the option to pay fine must be given.
T. Elavarasan — 2011 (266) ELT 167 (Madras HC)	Madras High Court relied on the Andhra ruling and held that option must be given to pay applicable customs duty and the redemption fine to secure release under Section 125.	The Court used this as supporting judicial precedent to affirm the applicability of Section 125's option to redeem in similar concealment scenarios.
Mohammed Irfan Khwajamiya Shaikh — 2006 (204) ELT 637 (Settlement Commission)	Settlement Commission granted complete immunity from prosecution and settled a case where cigarettes were illegally imported by concealing them among radio cassette recorders.	The Court referred to this settlement as demonstrating that the Settlement Commission can grant immunity in cases of concealed importation of cigarettes, undermining DRI's contention that such cases are not amenable to settlement.

Court's Reasoning and Analysis

The Court proceeded by combining the statutory scheme, accepted factual admissions, and the authorities cited:

The Court noted the petitioners' admission of mis-declaration and their willingness to pay the differential duty and to file for settlement before the Settlement Commission immediately on receipt of show cause notices.
The Court analyzed statutory provisions: seizure of imported goods is permissible under Section 110 only when there is reasonable belief that goods are liable to confiscation under Section 111; if goods are confiscated after adjudication (Section 28 read with Section 124), Section 125 requires the adjudicating authority to offer an option to the owner/importer to redeem the goods by payment of a redemption fine, unless importation is expressly "prohibited". Section 110A provides for provisional release even pending adjudication.
Relying on the CESTAT decision (Bhargav B. Patel) and subsequent case law, and applying principles of statutory interpretation (as discussed in Ramesh Mehta), the Court accepted the distinction between contexts in which the definition of "prohibited goods" in Section 2(33) has been liberally applied (Sections 111/113) and the narrower reading required to give effect to the mandatory language ("shall") in Section 125. The Court agreed with the Tribunal's reasoning that applying the Section 2(33) definition mechanically in Section 125 would render statutory language redundant and absurd.
Given that the cigarettes and restricted R-22 gas were admitted to have been imported by concealment but were not expressly notified as "prohibited" for importation, the Court held that the petitioners (as owners/importers) would be entitled to the option to redeem their goods even upon adjudication — making Section 110A applicable for provisional release.
The Court considered DRI's contentions that the goods should be absolutely confiscated/destroyed and cannot be settled, as well as its territorial jurisdiction objection, and found those contentions lacking merit. The Court observed an existing settlement commission order (Mohammed Irfan Khwajamiya Shaikh) granting immunity in a comparable concealment scenario, indicating that settlement was possible.
The Court confronted a procedural conflict between respondents about which authority would determine duty (DRI claiming proper officer status to adjudicate post Section 28 notice, while the Commissioner asserted a different approach). Because the seized cigarettes are perishable and the parties had taken conflicting positions as to the adjudicating authority, the Court found it just and expedient to entertain the petitioners' request for conditional provisional release rather than defer resolution of provisional release pending inter-departmental determination.
Considering the Commissioner’s affidavit (which computed differential duty on 900 cartons at Rs. 6,21,14,598/-) and the petitioners’ willingness to pay that computed duty by installments, the Court concluded that provisional release on submission of an indemnity bond and staged payment schedule was reasonable. The Court also required certain safeguards (bond, labels, cooperation in investigation, timelines for issuance of notices and filing settlement applications, and a bar on coercive steps affecting personal liberty).
Finally, the Court disposed of the writ petition with the conditional directions while expressly keeping open the legal issue regarding the applicability of Section 4(2) of the Code for future consideration if required.

Holding and Implications

DISPOSED OF

Holding (direct effect):

The writ petition was disposed of with directions permitting conditional provisional release of the seized cigarettes on the terms set out by the Court.
The Court directed the petitioners to furnish a bond indemnifying the Commissioner of Customs (Ludhiana) for Rs. 6,21,14,598/-, and to pay the computed differential duty for the 900 cartons in three installments tied to the three Bills of Entry, with specified timelines and release within 48 hours of each installment payment.
Additional conditions included affixing mandatory warning labels after release, cooperation in investigations, allowance for an advocate at a visible but not audible distance during recording of statements, and a requirement that DRI issue notices under Section 28 read with Section 124 within four weeks.
The petitioners were required to file their settlement application within four weeks of receipt of such notice; the Settlement Commission was left free to decide all issues, including release of the R-22 gas.
No coercive steps prejudicing personal liberty were to be taken against the petitioners in relation to this case while the directions subsist; respondents were permitted to seek vacation of protection if the petitioners failed to make the stipulated payments.

Broader implications:

The decision applies the interpretation that Section 125's mandatory obligation to offer redemption is triggered unless importation is expressly "prohibited"; the Court adopted earlier reasoning distinguishing contexts where the definition of "prohibited goods" (Section 2(33)) has been liberally applied.
The Court did not purport to lay down a new binding precedent beyond the application of the cited authorities to the facts of this case; it disposed of the petition on factual admissions and offered directions specific to the seized consignments and the procedural posture of the parties.
The legal question regarding applicability of Section 4(2) of the Code was explicitly left open for the petitioners to press later if required.

Note: This summary reflects only the content and reasoning expressly contained in the provided opinion and does not add or infer facts or legal propositions beyond that text.

Show all summary ...

M. Jeyapaul, J.:— Reply was filed.

2. Heard the submissions made by learned counsel appearing for the writ petitioners and the learned counsel appearing for the respondents.

3. The first grievance raised in the petition revolves around interpretation of Section 4(2) of the Code. It is contention of the petitioners that the Respondents are not following the procedure prescribed under Section 154, 157, 167, 172 and 177 of the Code, despite absence of any provision inconsistent with the same in the Act. Several orders granting interim protection pending decision on this very issue are already placed on record and referred in the earlier Order dated 13.6.2016 Without prejudice to their contentions on this legal issue, the petitioners have joined the investigations being conducted by the DRI in respect of seizure of Cigarettes and restricted R-22 Gas, which were admittedly imported by the petitioner company by concealment in aluminium scrap and mis-declaration of material particulars in the three Bills of Entry filed at ICD at Ludhiana. The alleged offence is a “cognizable” offence in terms of Section 104(4) of the Customs Act, 1962.

4. The petitioner company has admitted mis-declaration in these three Bills of Entry and is willing to pay the differential duty on the Cigarettes for seeking its provisional release, and is willing to resort to statutory route of self-surrender by invoking jurisdiction of Settlement Commission for settlement of case at once upon issuance of show cause cum demand notice in respect of these three Bills of Entry. The settlement Commission is statutorily empowered to grant immunities from penalty, fine and prosecution under the Customs Act, 1962. Moreover, even otherwise the alleged offence is a compoundable offence.

5. It is submitted that although the R-22 Gas is a ‘restricted’ item for import, and the goods Cigarettes and the R-22 Gas were imported by concealment, however, none of these goods are expressly notified as ‘prohibited’ for importation. Imported Goods can only be seized under Section 110 of the Act, when there exists a reasonable belief that the same are liable to confiscation under Section 111. In respect of such goods even if the same are confiscated upon culmination of adjudication under Section 28 read with 124 of the Act, the owner/importer ‘shall’ be given an option to redeem the goods on payment of redemption fine in terms of Section 125 of the Act. Section 110A of the Act provides for provisional release of seized goods even pending adjudication. The petitioner company relies upon the Order dated 4.8.2015 of the Customs Excise and Service Tax Appellate Tribunal in the matter of Bhargav B. Patel in Appeal No. C/381/10-Mum reported in 2015-TIOL-1951-CESTAT-Mum, which is in the context of Section 125 of the Act. In para 11 thereof, it was held that under Section 125 of the Customs Act, unless the importation or exportation of goods is expressly “prohibited”, the Adjudication Authority is obliged to offer to the owner of the goods an option to pay fine in lieu of confiscation. The Tribunal referred to Asian Food Industries, 2006 (204) ELT 8 (SC), wherein the Hon'ble Apex Court inter alia observed that the meaning of word “prohibited” will have to be construed in regard to the text and context in which it is used and the words prohibition, restriction and regulation are meant to be applied differently. The Tribunal also observed that in the context of Section 111(d) or 113(d), in several precedents, the definition of ‘prohibited goods’ as contained in Section 2(33) of the Customs Act, 1962 has been applied liberally, including in Om Parkash Bhatia v. Union of India, 2003 (155) E.L.T 423 (S.C) and Sheikh Mohd. Omer v. Collector, 1983 (13) E.L.T 1439 (S.C). However, the issue, whether in the context of Section 125, the definition of ‘prohibited goods’ under Section 2(33) is applicable or not, was neither raised nor determined in these precedents. The Tribunal also relied upon settled principles of statutory interpretation as held in Ramesh Mehta v. Sanwal Chand Singhvi (2004) 5 SCC 409 for ascertaining the scope of words ‘unless the context otherwise requires’ appearing in Section 2(33) for application of the definition of ‘prohibited goods’, and rightly held that the liberal definition of Section 2(33) which is applied in the context of Section 111 or 113 cannot be applied in the context of Section 125. The Tribunal relied upon the judgment of Hon'ble Andhra Pradesh High Court in Shaik Jamal Basha v. GOI, 1997 (91) ELT 277 (AP), wherein after considering both Section 111 as well as scheme of Section 125 in a case of concealment the High Court was pleased to hold that attempt to import gold un-authorisedly will come under the second part of Section 125(1) of the Act where the adjudging officer is under mandatory duty to give option to the person found guilty to pay fine in lieu of confiscation. Section 125 of the Act leaves option to the officer to grant the benefit or not so far as goods whose import is ‘prohibited’ but no such option is available in respect of goods which can be imported, but because of the method of importation adopted, become liable for confiscation. Hon'ble Madras High Court in T Elavarasan, 2011 (266) ELT 167 (MAD HC), was pleased to rely on the said judgment of Hon'ble Andhra Pradesh High Court and held that an option has to be given to the petitioner to pay the applicable customs duty and the redemption fine and to get the gold jewellery released, as per Section 125 of the Customs Act, 1962. In the context of Section 125 if the word “prohibited” is construed as to apply in respect of every violation of any regulation or restriction or statutory procedural requirement, the word ‘shall’ in said Section would be rendered redundant and meaningless. If the definition of ‘prohibited goods’ is applied in the context of Section 125, it would result in absurdity rendering the word ‘shall’ redundant and otiose, because there cannot be any situation where the goods would be liable to confiscation under Section 111 and 113 as the case may be without there being any violation of the provisions under the Customs Act, 1962 or under any other law or rules, regulations made thereunder. Therefore, in the context of statutory provisions of Section 125, so as to give a meaningful application to both words ‘may’ and ‘shall’ used in the said Section, the definition of ‘prohibited goods’ is inapplicable by application of settled principles of statutory interpretation. The Tribunal was therefore correct in observing that under Section 125 of the Customs Act, unless the importation or exportation of goods is expressly “prohibited” the Adjudication Authority would be obliged to offer to the Owner the goods an option to pay fine in lieu of confiscation.

6. In the instant case the Cigarettes and restricted R-22 Gas were admittedly imported by concealment. None of the two goods are expressly “prohibited” for importation. Therefore, ultimately the petitioner company who is owner as well as importer would be entitled for an option to redeem the goods even upon adjudication. In such case, Section 110A concerning provisional release would be applicable.

7. In the instant case, the stand taken on behalf of DRI was that the goods which according to their own estimate have local market value of Rs. 10 Crores would be absolutely confiscated and would have to be burnt or destroyed, and that such cases of fraud cannot be settled by the Settlement Commission. On behalf of DRI objection was raised even on territorial jurisdiction of this Court in respect of the matter. However, since the place of importation is at Ludhiana where the declaration was filed, we see no merit in this objection. The Learned Counsel appearing for the petitioners has shown us an order passed by the Settlement Commission in the matter of Mohammed Irfan Khwajamiya Shaikh, 2006 (204) ELT 637 granting complete immunity from prosecution and settling the case against adjustment of duty, fine and penalty where Cigarettes were illegally imported by concealing them among Radio Cassette Recorders. Therefore, even other objections are without merits.

8. It was further stated on behalf of DRI that so far as payment of duty or provisional release is concerned, the same is to be determined or decided by the Commissioner of Customs at Ludhiana. The Commissioner of Customs (Preventive), Amritsar who holds the charge of Commissioner of Customs at Ludhiana, has filed a short affidavit inter alia taking a different stand that assessment/determination of duty would have to be done by DRI after issuing a notice under Section 28. As per this affidavit, DRI is proper officer and such notice under Section 28 would have to be adjudicated in accordance with law before asking to pay the duty. Thus, although the petitioner company has shown willingness to pay duty evaded for provisional release, both these respondents have taken contrary stand regarding who amongst them would have to determine the duty i.e would be the adjudicating authority. In such peculiar circumstances, we find it just and expedient to entertain the request of the petitioner company for considering conditional provisional release of the seized Cigarettes instead of relegating the petitioner company to the respondents for deciding this issue of provisional release of seized Cigarettes which are perishable in nature.

9. The Respondents have doubted the genuineness of the invoices submitted by the petitioner company under Affidavit before this Court.

10. In the affidavit of the Commissioner of Customs, the total Customs Duty chargeable on total 900 cartons as per these three invoices is computed at Rs. 6,21,14,598/-. The petitioner company is willing to make payment of this computed differential duty on provisional basis in three installments for seeking provisional release of seized Cigarettes imported under each of the three consignments.

11. Whereas the local market value of the seized Cigarettes is ascertained by the DRI as evident from the Panchnama, but no assessable value for the purpose of arriving at duty liability is proposed either in the remand application or before this Court. The Local market value would be inclusive of duties and taxes etc. The Invoices submitted before the Court under Affidavit cannot be brushed aside.

12. We therefore find it reasonable to permit provisional release of the seized Cigarettes on submission of a bond for total Rs. 6,21,14,598/- indemnifying Respondent Commissioner at Ludhiana for making good all the liabilities that may arise under the Act in respect of the goods imported under the three Bills of Entry, with the following further conditions-

(a) The petitioner company is permitted to pay within one week from the date of this Order, the differential duty in respect of 300 cartons of cigarettes admittedly imported by concealment vide Bill of Entry no. 4785466 dated 4.4.2016 Upon making such payment the said seized 300 cartons of cigarettes shall be released on provisional basis within 48 hours;

(b) Within 10 days thereafter, the petitioner company would deposit the differential duty in respect of 300 cartons of cigarettes admittedly imported by concealment vide Bill of Entry no. 4308262 Dated 19.2.2016 Upon making such payment the said seized 300 cartons of cigarettes shall be released on provisional basis within 48 hours;

(c) Within 10 days thereafter, the petitioner company would deposit the differential duty in respect of 300 cartons of cigarettes admittedly imported by concealment vide Bill of Entry no. 4410560 dated 27.02.2016 Upon making such payment the balance seized cartons of cigarettes shall be released on provisional basis within 48 hours.

(d) After release of the seized goods, the petitioner company shall affix labels containing the mandatory warnings on the packages so released on provisional basis before selling the same in market.

13. Although the petitioners have raised a substantial question of law regarding applicability of section 4(2) of the Code, which has prima facie merits. However, since the petitioners have shown their willingness to adopt the route of settlement and to discharge their duty liability even before issuance of notice under Section 28, we deem it appropriate to dispose of the petition at this stage with following directions-

(a) The Petitioners would co-operate in investigations and would appear as and when summoned. The Respondent DRI would permit the presence of an advocate at visible but not audible distance during interrogation as well as recording of statement which shall be permitted to be recorded in petitioner's own handwriting during reasonable office hours;

(b) The Respondent DRI shall issue a notice in respect of the aforesaid three Bills of Entry under Section 28 read with 124 of the Customs Act, 1962 within four weeks from the date of this Order;

(c) The petitioners would have to file their application for settlement of case not later than four weeks from the date of receipt of such notice;

(d) Settlement Commission would be free to decide all issues in respect of the said three Bills of Entry in accordance with law including release of R-22 gas.

(e) No coercive steps prejudicing personal liberty would be taken against the petitioners on either punitive or preventive basis in relation to the above case.

(f) In the event the petitioner company fails to make payment of duty as aforesaid for provisional release the respondents would be at liberty to move for vacation of the protection granted to the petitioners.

14. With the above directions the writ petition is disposed of while keeping open for the petitioners to raise the legal issue regarding applicability of section 4(2) of the Code, if so required.