CWP No.13914 of 2008 1
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH.
CWP No.13914 of 2008
Date of decision: 5 .8.2008
M/s Kundan Rice Mills Limited Panipat
Petitioner
v.
Union of India and others
-----Respondent.
CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL
HON'BLE MR JUSTICE AJAY TEWARI
Present:- Mr.Ashok Aggarwal, Sr. Advocate with
Mr. Jagmohan Bansal, Advocate for the petitioner.
Mr. Kamal Sehgal, Advocate for respondent Nos. 1& 2.
----
JUDGMENT:
1. This petition seeks quashing of seizure Memo
(Panchnamas) dated 10.7.2008, 11.7.2008, 15.7.2008 and
22.7.2008, Annexures P.2, P.5, P.7 and P.12 and provisional
release letter dated 25.7.2008, Annexure P.14. Further prayer is to
direct release of goods of the petitioner lying seized at its godowns
and at Port and also for a direction to return sum of Rs.2 crores
deposited under coercion and threat.
2. Case of the petitioner is that in August/September 2007,
he imported 14 consignments of 1843 MT EVA. He declared value
of the goods to be USD 1100-1156 PMT. The department
CWP No.13914 of 2008 2
enhanced value from USD 1100 to USD 1560 PMT. The
petitioner paid assessed duty under protest and sought passing of a
speaking order under section 17(5) of the Customs Act, 1962. The
petitioner also paid about Rs.1 crore as custom duty. In
March/June 2008, the petitioner again imported EVA and DCP and
filed Bill of entry. The Assessing Officer permitted clearance of
goods after revising the value on the basis of contemporaneous
import.
3. On 10.7.2008, representative of Directorate of Revenue
Intelligence conducted search at the business premises of the
petitioner. On account of ill-health and fearing arrest, the
Managing Director deposited Rs.2 crores. On 11.7.2008,
representative respondent No.2 seized material lying at the godown
of the petitioner, which was 2833 MT. The petitioner requested for
release of goods on 15.7.2008 reiterating the value declared. On
15.7.2008, again representative of respondent No.2 seized the
material which was received after the first seizure. The
Commissioner of Customs, Bombay vide letter dated 16.7.2008
restrained the petitioner from removing the goods covered by bills
of entry dated 30.6.2008. Out of the said goods, part of the goods
had already reached Delhi and Panipat, while the remaining 192
MT material was still in the process of loading at dry port. The
CWP No.13914 of 2008 3
petitioner was asked to submit details of the seized material which
was complied by the petitioner.
4. On 22.7.2008, the petitioner sought release of goods
against deposit of Rs.2 crores already made but respondent No.2
further seized material lying in Panipat godown.
5. Contention raised in the petition is that goods are lying
in open and may be damaged because of rain and the petitioner
may incur heavy demurrage and storage charges. Respondent No.2
vide letter dated 25.7.2008 offered to release the material on
provisional basis subject to stringent conditions which are as
under:-
(i) Adjustment of Rs.50 lacs only has been done
out of deposit of Rs.2 crores towards
differential duty on the ground that remaining
amount of Rs.1.5 crores was in favour of
Commissioner of Customs, New Delhi while
the goods have been imported through
CFS,Mulund.(ii) Highest value of contemporary imports has
been taken and bank guarantee of 10% of
seizure value of goods has been demanded.6. It is contended that the above conditions are harsh
and no opinion that goods are liable to confiscation has been
CWP No.13914 of 2008 4recorded. Under Rule 4(3) of the Customs Valuation
(Determination of Value of Imported Goods) Rules 2007,
lowest value of transactions of value of identical goods is to
be taken. No show cause notice has so far been issued nor
order passed confirming the demand. Even provisional
assessment has not been done. At best, the petitioner could be
required to pay differential duty and was not required to
secure the department against value of goods unless a finding
of liability to confiscation was recorded. The value of goods
has already been loaded on the basis of contemporary import
and thereafter seizure was not justified on the ground of
undervaluation. For recording an opinion of liability to
confiscation, there has to be some basis attributing mens rea
to the petitioner, confiscation being in the nature of a penal
action. Seizure on simple valuation dispute was against
instructions of Central Board of Excise & Customs.
7. In the reply filed, apart from denying the
averments in the writ petition, stand taken on behalf of the
respondents is that the main working of the petitioner was at
Delhi and thus, the territorial jurisdiction of this Court could
not be invoked merely on account of part of goods having
been seized at Panipat. Reliance, inter-alia, has been placed
CWP No.13914 of 2008 5on judgments of the Hon’ble Supreme Court in Canon
Steels P.Limited v. Commissioenr of Customs (Export
Promotion) (2007) 218 ELT 161 and Kusum Ingots &
Alloys Limited v. Union of India, (2004) 168) ELT 3. It has
been further stated that the petitioner had alternative remedy
in the form of opportunity to reply the show cause notice
which will be issued after investigation and thus, writ
jurisdiction could not be resorted to during pendency of
investigation. Reliance has been placed on judgment of the
Hon’ble Supreme Court on Assistant Collector of Central
Excise v.Jainson Hosiery Industries, 1979(4) SLT (J511).
8. As regards deposit of Rs.2 crores, it is stated the
said amount was paid voluntarily towards partial payment of
duty evaded. Reasons for seizure are clear from Panchnamas
that the goods are liable to confiscation. Reason to believe
only required holding of a belief on the basis of material and
the same was not subject to judicial review. Clearance of
goods under section 47 did not bar action under section 110.
The petition involves disputed questions.
9. In the additional affidavit filed by the Deputy
Director, it has been further stated that writ petition could not
be entertained during investigation in view of judgments of
CWP No.13914 of 2008 6the Hon’ble Supreme Court in Special Director and
another v. Mohd. Ghulam Ghouse and another, (2004)
164 ELT 141, Union of India and others v. M/s Livia
Exports and another, (2000) 116 ELT 13 and State of
Bihar v. JAC Saldanna, AIR 1980 SC 326. It has also been
stated that Managing Director of the petitioner admitted in
his statement dated 10.7.2008 that the petitioner was never
signing any contract with Overseas suppliers and he
deposited amount of Rs.2 crores towards differential customs
duty voluntarily. Investigation conducted revealed that
valuation declared by the petitioner was not correct as
compared to price declared by actual user importers.
Clearance of goods was no bar to further action under section
111 of the Customs Act as no finality was attached to the
order of assessment and even thereafter investigation into
allegation of mis-declaration was conducted. Reference has
been made to the provisions of Sections 122, 124, 125, 126,
127 of the Customs Act.
10. We have heard learned counsel for the parties and
perused the record.
11. Learned counsel for the petitioner pressed the
point of release of goods as detention of goods for a long
CWP No.13914 of 2008 7time would result in deterioration thereof apart from
hampering the business of the petitioner. He submitted that
harsh conditions could not be imposed for release. Reference
was made to letter dated 25.7.2008, Annexure P.14, offering
provisional release subject to following conditions:-
“1. Payment of differential duty amounting
Rs.1,34,99,633/- (after allowing adjustment of rs.50
lakhs already deposited vide letter dated 10.7.2008).
The calculation chart showing differential duty to be
paid on the seized goods, seized vide panchnama
dated 11.7.2008 is enclosed as Annexure A.
2. Execution of bank guarantee to the extent of 10%
of the seizure value of the goods lying seized in
your godown.
3. Execution of indemnity bond equivalent to the
seizure value as mentioned in panchnama dated
11.7.2008.
4. An undertaking in the form of an affidavit that
you will not challenge the identity of the said seized
goods during adjudication proceedings or during
prosecution if any launched against you.”
CWP No.13914 of 2008 8
12. It was submitted that conditions 2 and 3 with regard to
demand of bank guarantee to the extent of the value of goods and
demand of indemnity bond equal to seizure value of goods were
harsh conditions. The department was only concerned with the
duty and even according to their provisional estimate, the
differential duty worked out to Rs.1,34,99,633/- which was much
lesser than the amount already deposited by the petitioner with
them.
13. It was submitted that neither any show cause notice had
been issued nor any other justification shown for confiscation of
goods and duty assessed having been paid and at best, a case for
safe securing duty was made out.
14. Learned counsel for the respondents submitted that
seizure value of goods was Rs.40 crores and even on the ground of
undervaluation, the goods could be confiscated in which case, the
same will vest in the government and, thus, the department was
entitled to safeguard itself against the value of goods. If the goods
were released without safeguarding the department against value of
goods, the petitioner would be at liberty to sell the goods and use
the proceeds and the department will suffer loss. Conditions were,
thus, justified.
CWP No.13914 of 2008 9
15. Question is whether stand of the department in
imposing conditions with a view to safeguard itself against the
value of goods as against value of duty could be held to be illegal.
16. Learned counsel for the parties have referred to various
orders passed on the issue. Learned counsel for the petitioner relied
upon judgment of the Delhi High Court in Vipul Overseas Private
Limited v. Commissioner of Cus. ICD, TKD, new Delhi, (2006)
203 ELT 366, judgment of Gujarat High Court in Abhishek
Fashions Private Limited v. Union of India, (2006) 202 ELT 762
and judgments of this Court in Mapsa Tapes Private Limited v.
Union of India, (2006) 201 ELT 7, M/s Bhagwati International
Faridabad and another v. Union of India and others, CWP
No.8672 of 2001, decided on 21.8.2002 and Sonia Overseas
Private Limited v. Deputy director, Directorate, (2007) 216
ELT 687.
17. Learned counsel for the respondents on the other hand
relied on judgment of this Court in T.L.Verma and Company
Private Limited v. The Union of India and others, CWP
No.12107 of 2008, decided on 22.8.2008, upholding the view that
the goods being liable to confiscation under section 111(m) of the
Act, condition of requiring indemnity bond equal to market value
of goods could be justified.
CWP No.13914 of 2008 10
18. Before going into the rival contentions, we may deal
with certain peripheral issues raised on behalf of the respondents.
One of the objections was that this Court did not have territorial
jurisdiction as only part of goods was seized at Panipat. The
objection could not be seriously pressed when learned counsel for
the petitioner referred to para 10 of the judgment of the Hon’ble
Supreme Court in Kusum Ingots (supra). Other objection was that
amount of Rs.2 crores was voluntarily deposited and its refund
could not be sought. Mere voluntary deposit cannot operate as an
estoppel if the amount is not due. As regards interference by this
Court at this stage, we may only observe that if action of the
respondents affects rights of the petitioner, such rights can
certainly be enforced. It cannot be suggested that this Court has no
jurisdiction against any illegal action at any stage. Though by way
of self restraint, there is alternative remedy, this Court may not
interfere, as observed in the judgments relied upon. Issue of release
of goods being of urgent nature, if goods are illegally detained or
harsh conditions are imposed, affected party can certainly invoke
jurisdiction of this Court.
19. Power of effecting seizure under section 110 of the
Customs Act can be exercised only on satisfaction that the goods
were liable to confiscation. Under section 111(m) of the Act, goods
CWP No.13914 of 2008 11
may be liable to confiscation on the ground of undervaluation also.
Mere existence of such an extreme power does not render exercise
of such power immune from challenge on the ground that the same
was arbitrary. This Court may not at the interim stage interfere
with the investigation or with the bonafide belief that it was
necessary to effect seizure but again existence of such extreme
power could not be a handle in the hands of officers of the Custom
department to act arbitrarily without any rational basis. Thus,
validity or otherwise of conditions for release will have to be
decided on individual fact situation. Claim for securing against
value of goods can be justified only if prima facie case for
confiscation exists, which has not been shown to exist in the
present case. Mere existence of power of confiscation is not
enough to justify harsh conditions unless case for confiscation is
shown. Exercise of power to impose harsh conditions without valid
justification will be arbitrary exercise of power hit by Articles 14,
19 and 21 of the Constitution. We may refer to following
observations of the Hon’ble Supreme Court in Distt. Registrar
and Collector, Hyderabad v. Canara Bank, AIR 2005 SC 186,
para 33, which have also been referred to in Mapsa Tapes (supra):
“33. Intrusion into privacy may be by – (1) legislative
provisions, (2) administrative/executive orders, and (3)
CWP No.13914 of 2008 12judicial orders. The legislative intrusions must be tested on
the touchstone of reasonableness as guaranteed by the
Constitution and for that purpose the Court can go into the
proportionality of the intrusion vis-a-vis the purpose sought
to be achieved. (2) So far as administrative or executive
action is concerned, it has again to be reasonable having
regard to the facts and circumstances of the case. (3) As to
Judicial warrants, the Court must have sufficient reason to
believe that the search or seizure is warranted and it must
keep in mind the extent of search or seizure necessary for the
protection of the particular State interest. In addition, as
stated earlier, common law recognized rare exceptions such
as where warrantless searches could be conducted but these
must be in good faith, intended to preserve evidence or
intended to prevent sudden danger to person or property.”
20. We may also refer to well known observations of the
Hon’ble Supreme Court on the issue of scope of interference by
this Court:-
“…..Needless to say that Courts in India, which function
under a written Constitution which confers fundamental
rights on citizens, have exercised, far greater powers than
those exercised by Courts in England where there is no
written constitution and there are no fundamental rignts.
Therefore the decisions of courts in England as regards
powers of the Courts, “surveillance”, as Lord Pearce calls it,
or the control which the judiciary have over the Executive, as
Lord Upiohn put it, indicate at least the minimum limit to
CWP No.13914 of 2008 13which Courts in this country would be prepared to go in
considering the validity of orders of the Government of its
officers. In that sense the decision of the House of Lords in
padfield v. Minister of Agriculture Fisheries and Food(1968
AC 997)is a landmark in the history of the exercise by Courts
of their power of surveillance.
13. The Executive have to reach their decisions by taking into
account relevant considerations. They should not refuse to
consider relevant matter nor should take into account wholly
irrelevant or extraneous consideration. They should not
misdirect themselves on a point of law. Only such a decision
will be lawful. The courts have power to see that the
Executive acts lawfully. It is no answer to the exercise of that
power to say that the Executive acted bona fide nor that they
have bestowed painstaking consideration….”
(Hochtief Gammon v. State of Orissa & Ors. AIR 1975 SC
2226)“……That Court has power, by the prerogative writ of
mandamus, to amend all errors which tend to the oppression
of the subject or other misgovernment, and ought to be used
when the law has provided no specific remedy, and justice
and good government require that there ought to be one for
the execution of the common law or the provisions of a
statute…” (The Comptroller and Auditor General of India,
Gian Prakash, New Delhi & anr. V. K.S. Jagannathan &
anr. AIR 1987 SC 537).
CWP No.13914 of 2008 14
“……The Constitution enshrines and guarantees the rule of
law and Art. 226 is designed to ensure that each and every
authority in the State, including the Government acts bona
fide and within the limits of its power and we consider that
when a Court is satisfied that there is an abuse or misuse of
power and its jurisdiction is invoked, it is incumbent on the
Court to afford justice to the individual.( S, Partap Singh v.
State of Punjab AIR 1964 SC 72).
“……The basic requirement of Art. 14 is fairness in action
by the State and we find it difficult to accept that the State
can be permitted to act otherwise in any field of its activity,
irrespective of the nature of its function, when it has the
uppermost duty to be governed by the rule of law. Non-
arbitrariness, in substance, is only fair play in action. We
have no doubt that this obvious requirement must be satisfied
by every action of the State or its instrumentality in order to
satisfy the test of validity….
Xx xx xxx xxxx
………all State actions ‘whatever their mien are amenable to
constitutional limitations, the alternative being to permit them
‘to flourish as an imperium in imperio’….
Xx XX XXX XXX
…… Where there is arbitrariness in State action, Art. 14
springs in and judicial review strikes such an action down.
Every action of the executive authority must be subject to
rule of law and must be informed by reason. So, whatever be
the activity of the public authority, it should meet the test of
CWP No.13914 of 2008 15Art. 14………” ((Kumari Shrilekha Vidyarthi etc. v. State of
U.P. & ors. AIR 1991 SC 537).
“…..In requiring statutory powers to be exercised reasonably,
in good faith, and on correct grounds, the Courts are still
working within the bounds of the familiar principle of ultra
vires. The Court assumes that Parliament cannot have
intended to authorize unreasonable action which is therefore
ultra vires and void…..” (Express Newspapers Pvt. Ltd. V.
UOI, AIR 1986 SC 872).
21. In the present case, we do not consider it necessary to
examine the bonafides of the respondents in exercising power of
effecting seizure without recording any reasonable belief of
liability of goods to confiscation before effecting seizure in view
of limited prayer pressed. We do find that harsh conditions sought
to be imposed can hardly stand scrutiny on the anvil of concept of
reasonable procedure and reasonableness and fairness. It is well
settled that even in case of existence of power, exercise thereof has
to be fair and reasonable and consistent with the principle of
proportionality. Neither any provisional assessment has been made
nor any show cause notice has so far been given. Only allegation
so far made is undervaluation.
CWP No.13914 of 2008 16
22. Having regard to judgment of the Delhi High Court in
Vipul Overseas and other orders of this Court referred to above
and also in view of order Annexure P.14 passed by the respondents
deciding to provisionally release the goods, we are of the view that
goods are liable to be released. Condition of execution of
indemnity bond equivalent to seizure value of goods or furnishing
of bank guarantee equal to 10% of value of goods cannot be
justified. There is nothing to show that even prima facie, goods are
liable to confiscation.
23. Accordingly, without expressing any opinion on merits
of this case at this stage, we quash condition Nos. 2 and 3 imposed
in letter dated 25.7.2008, Annexure P.14 and direct release of
goods on other conditions imposed in the above letter. We further
direct that after adjusting the differential duty mentioned in the
above letter, the rest of the money deposited by the petitioner be
refunded to it.
24. The petition is disposed of.
(Adarsh Kumar Goel)
Judge
September 5, 2008 (Ajay Tewari)
'gs' Judge