Akanksha Syntex Pvt. Ltd. vs Union of India

Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the petitions are taken up for hearing and final disposal. The petitioners have challenged an order passed by the Commissioner of Customs on 12, December, 2011 granting provisional release u/s 110A of the Customs Act, 1962 subject to the following conditions:

(a) Payment of differential duty on the basis of redetermined value as proposed by the DRI (DZU) through TR-6 Challan.

(b) Furnishing a Bond equivalent to 100% of the redetermined assessable value as proposed by the DRI (DZU).

(c) Securing a Bank Guarantee with a self-renewal cause equivalent to the 30% of the redetermined assessable values as proposed by DRI (DZU) for covering the redemption fine and penalty.

(d) Furnishing of an undertaking that they will not dispute the identity of the goods during the course of adjudication/prosecution.

The petitioner imported four consignments allegedly of PU Coated Fabric under four Bills of Entry through the port of CFS Mulund. The DRI at New Delhi had initiated investigation against the petitioners for several imports at, inter alia, Inland Container Depots in Delhi and NCR on the basis of information that the value declared by the importer was incorrect. Orders of seizure were issued on 5 May, 2011 and 18 July, 2011. The Commissioner of Customs subsequently passed an order extending the period of seizure in terms of the proviso to Section 110(2) for six months by an order dated 2 August, 2011. An order for provisional release was passed on 12 December, 2011. The petitioners had moved the CESTAT. The Tribunal by its judgment dated 9 October, 2012 [2013 (281) E.L.T. 186 (Tri.-Mumbai)] came to the conclusion that an appeal is not maintainable against an order passed u/s 110A for provisional release. Ultimately, these proceedings came to be instituted for challenging the order of the Assistant Commissioner of Customs directing provisional release.

Two submissions have been urged on behalf of the petitioners. The first submission is that where a notice to show cause is not issued within one year of the detention of the goods, Section 110(2) mandates that the goods have to be released unconditionally. The second submission is that on a differential duty of Rs. 4 lakhs, the Commissioner has directed the petitioners to furnish a Bank Guarantee of Rs. 36 lakhs. An amount of Rs. 2 crores is already stated to be lying in deposit with the Department. Counsel relied upon the judgment of the Punjab and Haryana High Court dated 30 November, 2012 in the case of the petitioner whereby goods lying in the Inland Container Depots at Ballabgarh and at Ludhiana and Delhi were directed to be released, in view of the fact that the amount of Rs. 2 crore is lying with the Customs authorities which shall be adjusted against the liability that may be determined upon adjudication.

An affidavit in reply has been filed in these proceedings by the Deputy Commissioner of Customs, ICD Mulund (Imports). The affidavit explains in detail the nature of the allegations and the modus operandi followed by Ashish Jain, who was controlling three firms, namely, Aakanksha Syntex P. Ltd. (the Petitioner), Ishita Exports and Aarushi International. The allegation is that these firms were used by him for the import of fabrics from suppliers in China. It is alleged that with a fraudulent intention to evade Customs duty, the value and description of goods were misdeclared and that undervalued invoices were prepared with the assistance of his indenting agent based in China for the purpose of evading customs duty. It is alleged that the goods were misdeclared as Polyester Knitted Fabrics whereas the imported fabric was Viscose Fabrics. The affidavit in reply discloses mat statements of Ashish Jain were recorded on 3 February 2011, 4 February, 2011, 22 March, 2011, 5 May, 2011, 13 May, 2011, 16 May 2011 and 4 July 2011. The transaction value of different types of fabrics imported by three firms is alleged to be not correct. A notice to show cause has been issued on 20 December 2012. The affidavit in reply sets out a chart pertaining to the consignments imported by each of the three firms, the Port of import, declared assessable value, actual assessable value and differential duty. As regards the petitioner, 190 consignments were imported through the ICD at New Delhi, CFS Mulund and ICD Ballabgarh. The declared assessable value is Rs. 28.22 crores, while the actual assessable value is alleged to be Rs. 60.63 crores; the differential duty being Rs. 5.50 crores. A total of 404 consignments pertaining to the three firms are involved. As against a total declared assessable value of Rs. 56.46 crores, it is alleged that the actual assessable value is Rs. 123.53 crores with a differential duty of Rs. 12.25 crores.

The first submission is based on the provisions of Section 110(2). Section 110(2) provides as follows:

(2) Where any goods are seized under sub-section (1) and no notice in respect thereof is given under clause (a) of Section 124 within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized:

Provided that the aforesaid period of six months may, on sufficient cause being shown, be extended by the Commissioner of Customs for a period not exceeding six months.

Sub-section (1) of Section 110 empowers the proper officer to seize goods which he believes are liable to confiscation under the Act. Under sub-section (2), if no notice in respect of goods which are seized under sub-section (1) is given under clause (a) of Section 124 within six months of the seizure, the goods have to be returned to the person from whose possession the goods were seized. The Commissioner of Customs is empowered to extend the aforesaid period of six months subject to sufficient cause for a period not exceeding six months. Section 124(a) provides that a notice has to be furnished before an order confiscating any goods or imposing any penalty on any person can be made.

Now Section 124(a) does not provide a period of limitation for issuance of a notice. Section 110(2) stipulates the consequence which is to ensue if no notice u/s 124(a) is furnished within six months of the seizure of the goods (extendable by a further period of six month). The consequence is that the goods have to be returned to the person from whose possession they were seized. However, this does not affect the validity of the notice u/s 124(a) even if it is issued beyond six months. Assistant Collector of Customs Vs. Charan Das Malhotra, and J.K. Bardolia Mills Vs. M.L. Khunger, Dy. Collector and Others, .

These provisions have been interpreted in a judgment of a Division Bench of this Court in Jayant Hansraj Shah Vs. Union of India (UOI) and Others, . The Division Bench held that it is only where no order has been passed for provisional release of the seized goods that Section 110(2) would apply, if no notice is issued u/s 124(a) within the period stipulated. The Division Bench held that any other reading of the section would mean that a person whose goods are seized would seek provisional release, obtain an order for provisional release and on the expiry of a period of six months if notice is not issued u/s 124(a) then contend that the terms for provisional release are no longer binding as the period of six months has expired without the issuance of a notice. The Punjab and Haryana High Court has in Akanksha Syntex (P) Limited v. Union of India, CWP 3060 of 2012, decided on 30 November 2012 differed with the view taken by the Division Bench of this Court in Jayant Hansraj Shah. That case related to the Petitioner. The Delhi High Court has similarly taken a different view in Jatin Ahuja Vs. Union of India and Others, . In so far as this Court is concerned, the view of the Division Bench is binding. Hence, respectfully following the view of the Division Bench, we do not find any merit in the submission which has been urged on behalf of the petitioner.

The second submission of the petitioner relates to the conditions which have been imposed for provisional release. The order for provisional release requires the Petitioner to (i) Pay differential duty on the basis of the redetermined value as proposed by the DRI; (ii) Furnish a bond equivalent to the redetermined assessable value as proposed by the DRI; (iii) Secure a Bank Guarantee, subject to renewal, equivalent to 30% of the redetermined assessable value as proposed by the DRI for covering the redemption fine and penalty; (iv) Furnishing an undertaking that the petitioner will not dispute the identity of the goods during the course of adjudication or prosecution. The petitioner is aggrieved only by the imposition of the third condition requiring it to furnish a Bank Guarantee. The challenge at the hearing is confined by counsel to that extent. According to Counsel, though the differential duty proposed is Rs. 4.08 lakhs, the Petitioner has been called upon to furnish a Bank Guarantee of Rs. 36.25 lakhs which is computed in a chart annexed at Exh. N to the petition. In respect of the goods which were the subject matter of the order of provisional release by the Commissioner, Central Excise and Customs, Delhi-IV, Faridabad, an order was passed on 30 December, 2011 by which a Bank Guarantee of the value of Rs. 89.14 lakhs was demanded as against a differential duty of Rs. 44.57 lakhs. Hence, Counsel submits that whereas the goods which form the subject matter of the provisional release by the Commissioner at Faridabad were subjected to a bank guarantee condition of approximately 200% of the differential duty, the bank guarantee proposed by the Assistant Commissioner in the impugned order is several times higher. We find from the order of the Commissioner of Customs and Central Excise, Faridabad that reliance has been placed on the relevant guidelines contained in the Manual of C.B.E. & C. In Bhavik K. Shah Vs. Union of India (UOI) and Others, , a Division Bench of this court has considered the guidelines of C.B.E. & C. and has noted that the relevant guidelines to the effect that the Bank Guarantee shall not exceed twice the amount of duty is not to apply to a case involving a serious fraud. In the present case, as the affidavit in reply indicates, there are allegations of serious fraud and malpractice on the part of the petitioners. Hence, we do not find that there is substance in that contention of the petitioners.

The Commissioner of Central Excise, in the present case has called for a Bank Guarantee on the basis of an amount computed at 30% of the redetermined assessable value, for covering a possible redemption fine and penalty. In our view, having regard to the fact that an amount of Rs. 2 crores is lying in deposit with the Customs authorities, the extent of the Bank Guarantee demanded appears to be disproportionate. The adjudication is still pending and the allegations against the petitioner are still to be proved in the course of adjudication. What should be the correct assessable value has to be still determined on adjudication. The ends of justice would be met if the quantum of the Bank Guarantee is duly modified from 30% of the redetermined assessable value to 15% of the redetermined assessable value. Subject to the aforesaid modification, we do not interfere with the terms and conditions imposed in the order for provisional release.

Accordingly we dispose of the petitions by directing that the order dated 12 December 2011 passed by the Commissioner of Customs (General) (Exh.L.) shall be modified only to the extent that the quantum of the bank guarantee to be furnished by the petitioners shall be 15% of the redetermined assessable value instead and in place of 30% as directed. The Petitions are accordingly disposed of. There shall be no order as to costs.