Olympic Woollen Mills vs Union of India (UOI)

M.M. Kumar, J.—This petition filed under Article 226 of the Constitution challenges orders dated 22-1-2009, 20-2-2009 and 9-6-2009 (P-2, P-6 & P-7), passed by the Directorate of Revenue Intelligence, Ludhiana, detaining/seizing 5400 Kgs. yarn and cash of Rs. 4.2 lacs of the Petitioner. A further prayer has also been made for directing the Additional Director, Directorate of Revenue Intelligence-Respondent No. 2 to defreeze the bank account and D-Mat account of the Petitioner; and allow it to withdraw funds therefrom.

The case of the Petitioner is that it used to import various types of yarn from China and sell the same as such or after converting the same into fabrics. It is claimed that the Petitioner has neat and clean track record of importing goods and that during the last five years the Custom Officers never raised any objection at the time of clearance of their goods. It has been averred that it has always complied with the requirements of Sections 17, 46 and 47 of the Customs Act, 1962 (for brevity, ''the Act''). These provisions relate to assessment of duty, entry of goods on importation and clearance of goods for home consumption.

On 22-1-2009, the officers of the Directorate of Revenue Intelligence (DRI) conducted a search of the factory and residential premises of the Petitioner and detained 5400 Kgs. yarn, record and material as well as Rs. 4.2 lacs lying at the residence of the Petitioner (P-l to P-3) under the provisions of the Act. It has been alleged that on 23-1-2009, the revenue-Respondent has even issued directions to the bankers to freeze the bank accounts of the Petitioner and his family members (P-4). The revenue-Respondent also directed M/s. Angel Brokering Limited to freeze the account of the Petitioner with whom it is maintaining D-Mat Account (P-5). It has been asserted that a sum of Rs. 3.99 lacs was lying with the said firm on account of sale proceeds of shares.

On 20-2-2009, the revenue-Respondent seized 5400 Kgs. of imported yarn, namely, Nylon Lurex Yarn, which was detained vide Detention Memo, dated 22-1-2009 (P-2). The market value of the seized goods was assessed as Rs. 17,90,000/- (P-6). However, option was given to the Petitioner to apply for provisional release of goods. Subsequently, on 9-6-2009 the detained amount of Rs. 4.2 lacs was also seized (P-7).

The Petitioner has claimed that apart from importing the material, it also purchased imported material from the local dealers and the turn over of such domestically procured yarn is Rs. 4-5 crores every year. It has been pointed out that during 2008-09 the Petitioner has imported yarn only worth Rs. 60-70 lacs and it cannot be held liable for evasion of duty, if any, by the importers who had sold material to it. In that regard the Petitioner has sent letters dated 16-4-2009 and 29-5-2009 to the Respondent that they have assessed value of seized goods at Rs. 17.90 lacs without any basis. The actual market price of the goods in question is much less than what has been assessed. The Petitioner also requested to consider the price of their last import of 100% nylon yarn. In that regard it showed its willingness to furnish bank guarantee and bond equal to difference between their last declared value and value assessed by DRI (P-8 & P-9).

On 15/16-7-2009, the Additional Director General, DRI, New Delhi, issued a show cause notice. In para 7 of the said notice it has been mentioned that the investigation could not be completed within the stipulated period of six months and, therefore, show cause notice proposing confiscation of seized goods and currency u/s 124 of the Act as provided in Section 110(2) of the Act, cannot be issued within the stipulated period of six months in case of seizure of goods. Accordingly, the Petitioner was called upon as to why the period of six months may not be extended by another six months for the purpose of issuing a show cause notice under the proviso to Section 110(2) of the Act. In para 9 of the said notice, the Petitioner was asked to appear for personal hearing on 20-7-2009 at 11.00 a.m. before the Commissioner of Customs, Amritsar (P-10). The aforementioned show cause notice was served upon the Petitioner on 16-7-2009.

On 20-7-2009, the Petitioner appeared through his counsel before the Commissioner of Customs, Amritsar and a request was made for some time to file reply and for supply of relied upon documents (P-ll). It has been claimed by the Petitioner that no order extending the period for issuance of show cause notice u/s 110(2) of the Act has been served upon it. However, from the reply filed by the Respondent in the case of Abhaas Spinners Private Limited v. Union of India and Ors. CWP No. 7972 of 2009 they came to know that on 21-7-2009 the Commissioner of Custom has passed an order, copy of which was sent by ordinary post on 21-7-2009 but the same never reached the Petitioner. The extract of the Despatch Register dated 21-7-2009 has been placed on record (P-12).

It is claimed that on 2-9-2009 and 8-9-2009 the Petitioner made requests to the Respondent to defreeze the balance lying in the bank and D-Mat account on the premise that no show cause notice in terms of Section 110(2) of the Act has been issued and the period of six months has expired from the date of seizure, therefore, the cash lying in accounts should be released.

The Petitioner has also claimed that u/s 110(A) of the Act the Respondents were required to follow the procedure as envisaged u/s 110(1B) of the Act, whereas they have detained/seized the goods u/s 110 of the Act. It has been submitted that u/s 110 of the Act the goods could be seized only if the seizing officer has reasons to believe that goods are liable to confiscation, whereas no reasons have been given in the seizure memos and, therefore, the Petitioner has been deprived of its valuable right to utilize the goods in question. It has further been asserted that in the present case yarn and cash was detained/seized on 22-1-2009 and as per Section 110(2) of the Act, if no notice in terms of Section 124 of the Act is given within six months then the goods are liable to be returned to the person from whose possession they were seized. The show cause notice proposing extension of stipulated period of six months by another six months was served upon the Petitioner on 16-7-2009 and it could file reply within a week from the date of receipt of the said notice. Even though the Petitioner was granted a period of seven days time to file the reply but matter was fixed for hearing on 20-7-2009, on which date the counsel for the Petitioner appeared and requested for supply of documents and some time. On 21-7-2009, the period of six months expired but the Respondent did not serve any order extending the period in terms of proviso to Section 110(2) of the Act. Therefore, the Respondent is bound to return the seized yarn as well as cash.'' In that regard reliance has been placed on the Division Bench judgment of this Court rendered in the case of Abhaas Spinners Private Limited v. Union of India and Ors. CWP No. 7972 of 2009, decided on 23-9-2010.

In the return filed in the shape of affidavit on behalf of the Respondents in the Court today, it has been stated that the DRI, Ludhiana, had the reports that some unscrupulous importers of various types of yarn were indulging in evasion of Customs Duty by mis-declaring the value and description of the yarn imported by them from China and Singapore. In that regard various searches were conducted by the DRI on 5-11-2007 on the premises of various Import firms located at Ludhiana as well as their hawala operators & indenter-cum-agents of the Chinese suppliers through whom they were importing yarn. As a result of the said search operation mis-declaration and undervaluation to the tune of 25%-67% of the actual import value was revealed. Subsequently, show cause notices were issued to 5 importers involving differential duty demand of approximately Rs. 15.5 crores as also for confiscation of bank drafts, cash etc.

It has been further submitted that the intelligence gathered also revealed that the Petitioner had also imported yarn from China adopting similar modus operandi of mis-declaration and undervaluation. Accordingly, searches were conducted on 22/23-1-2009 on the business/residential premises of the Petitioner. The factual position as narrated in the preceding paras has been admitted in the return. However, it has been pointed out that on 22-1-2009 the statement of the proprietor of the Petitioner was recorded and he was not able to correlate the detained imported yarn with the bills of entry and he gave an assurance to provide the details within a week. On 11-2-2009 a reminder was issued by the DRI to the Petitioner to produce the bills of entry alongwith copies of other relevant documents pertaining to the detained goods. On 18-2-2009 again summons were issued to Shri Sandeep Jalota, Proprietor of the Petitioner-firm. The samples of the detained goods were also sent for analysis to the Laboratory at New Delhi, and the test report was received on 19-2-2009, which proved that the detained goods were 100% Nylon Yarn/Nylon Polyester Blended Yarn. The same is Synthetic Yarn and covered by Notification No. 204-Cus., dated 20-7-1984 (as amended) issued u/s 123 of the Act. It has further been averred that in terms of Section 123 of the Act it was incumbent upon the Petitioner to discharge the burden of proof that the Synthetic Yarn found in their premises is not smuggled goods. No documents were produced by the Petitioner to show the licit possession of imported yarn detained under Memo, dated 22-1-2009. Therefore, the detained goods were offending goods and liable for confiscation.

It has further been highlighted that in his statement recorded on 22-1-2009, Shri Sandeep Jalota, Proprietor of the Petitioner-firm stated that the cash amounting to Rs. 4,20,000/- was belonging to the Petitioner firm. On 5-2-2009 when his statement was again recorded, he has not contradicted the statement of his father, namely, Shri Surinder Mohan Jalota, which was recorded on 22-1-2009 with regard to detained cash of Rs. 4.20 lacs. However, vide letter dated 29-5-2009, Shri Sandeep Jalota has changed his version and claimed that the cash belongs to his father and mother. There is, thus, reasonable belief that the amount in question belongs to the sale proceeds of undervalued imported yarn, which were not accounted for in the prescribed books of accounts and liable for confiscation u/s 111 read with Section 2(22), 2(39), 120 and 121 of the Act.

With regard to non-supply of the order extending the period of issuance of show cause notice in respect of seized goods by another six months under proviso to Section 110(2) of the Act, while referring to the provision of Section 110(2) it has been stated that the said Section does not stipulate any time limit within which the Custom Authorities are legally bound to communicate the order to the Petitioner. It has been admitted that the order extending the period of issuance of show cause notice was passed on 21-7-2009 by the Commissioner and the same was dispatched to the Petitioner on the same day by ordinary post.

Regarding non-supply of documents it has been asserted that it has no relevancy for merits of the case. The reasons for search are not required to be conveyed to the concerned party. Furthermore, the Adjudicating Authority in para 11 of its order has held that the documents sought by the Petitioner for filing the reply have no relevance for deciding the matter regarding extension of time limit. The documents requested by the Petitioner will be relevant for them for filing the reply to the final show cause notice to be issued to them after completion of investigation.

Having heard learned Counsel for the parties and perusing the paper book with their able assistance, we find that the controversy raised in the instant petition is no longer res Integra. All the issues raised in the instant petition have already been dealt with in detail in a similar controversy, involving the same factual position, by a Division Bench of this Court (of which one of us, M.M. Kumar, J. was a member) in the case of M/s. Abhaas Spinners Private Limited (supra). In the said case, the Division Bench has formulated the following two questions of law:

(A) Whether the goods in question continues to attract the provisions of the Customs Act, 1962 after the Petitioner-Company had relinquished its title u/s 23(2) of the Act and purchased the goods from the auction purchaser after the same were auctioned in an open auction conducted by the port authorities of Punjab State Warehousing Customs (PSWC) after obtaining permission from its proper officer?

(B) Whether in the facts and circumstances of the case, order dated 23-7-2009, granting extension beyond the period of six months could be passed without communicating the same to the Petitioner Company as per the requirement of Section 153 of the Act?

After elaborately discussing the factual and legal position, provisions of Sections 2(25), 2(26), 23, 48,110,110A, 124 and 153 of the Act and various judgments rendered in the cases of S.S. Gadgil, Income Tax Officer, Bombay Vs. Lal and Company, ; Shreyans Industries Ltd. v. State of Punjab, (2008) 18 VAT STC 493 (P&H) ; Bibhuti Bhusan Bag and Anr. v. I.I. Rao and Ors. 1968-1969 (73) CWN (Cal.); Vadilal Industries Ltd. Vs. Union of India (UOI), ; Neha Cosmetics Vs. Commissioner of Central Excise, and Redington India Limited v. Commissioner of Customs (Appeals), Chennai 2007 (212) E.L.T. 187 (Mad.) the Division Bench answered the aforementioned questions in favour of the Petitioner in Abhaas Spinners Private Limited case (supra).

We are of the considered view that the instant petition is squarely covered by the Division Bench judgment rendered in M/s. Abhaas Spinners Private Limited case (supra). Like in the present case, in that case also a notice in terms of Section 124(c) of the Act was issued on 15-7-2009 to the Petitioner to provide a reasonable opportunity of being hear, which stipulated a week''s time. It was received by the Petitioner on 16-7-2009 and a period of one week was to expire on 23-7-2009. The Petitioner was to appear on 20-7-2009 when it has requested for supplying copies of the documents.-However, the order was passed on 20-7-2009 itself. Like in the earlier case, it has to be held in this case as well that the opportunity to make representation within the meaning of Section 124(c) of the Act has been rendered illusory as the order has been passed prior to the expiry of seven days and no effective opportunity of hearing has been afforded. There is, thus, wholesome violation of Section 124 of the Act and the impugned order is liable to be set aside on that score alone. Furthermore, like in M/s. Abhaas Spinners Private Limited case (supra) the order extending the period of six months has not been communicated to the Petitioner in the instant case also. Therefore, the reasoning given in the aforesaid case would fully apply to the facts of the present case, which we respectfully adopt.

Learned Counsel for the Respondents has also not been able to seriously dispute the aforementioned position.

In view of the above, the instant petition is allowed in terms of the Division Bench judgment of this Court rendered in the case of M/s. Abhaas Spinners Private Limited (supra). Accordingly, the order granting exemption, if any, passed by the Respondent, is hereby quashed. Since the period of six months has already expired, therefore, the detention Memo, dated 22-1-2009 (P-2), order of seizure dated 20-2-2009 (P-6) and order of confiscation of case dated 9-6-2009, u/s 111 read with Section 2(22) and 2(39), 120 and 121 of the Act (P-7) are also quashed.

The writ petition stands disposed of in the above terms.