Civil Writ Petition No.13914 of 2008 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.13914 of 2008 Date of decision: December 15, 2008 M/s Kundan Rice Mills Ltd. ..... Petitioner versus The Union of India and others .... Respondents Coram: Hon'ble Mr. Justice Hemant Gupta Hon'ble Mr. Justice Nawab Singh Present: Mr. Ashok Aggarwal, Senior Advocate with Mr. Jagmohan Bansal, Advocate for the petitioner. Mr. Kamal Sehgal, Advocate for respondents No.1 and 2. --- Hemant Gupta, J. The petitioner, an incorporated Company, has invoked writ jurisdiction of this Court claiming writ of certiorari for quashing panchnama dated 10.07.2008 (Annexure P-2), panchnama dated 11.07.2008 (Annexure P-5), panchnama dated 15.07.2008 (Annexure P-7) and panchnama dated 22.07.2008 (Annexure P-12). The petitioner has also sought the quashing of the conditions imposed in the communication dated 25th July, 2008 (Annexure P-14) while ordering provisional release of good seized. The petitioner is importer of Ethylene Vinyl Acelate (hereinafter called “EVA”) and Dicumyl Peroxide (hereinafter called Civil Writ Petition No.13914 of 2008 [2] “DCP”) from Taiwan, Thailand and China. On 10th July, 2008 the business and residential premises of the petitioner and its Directors were searched inter-alia on the ground that the petitioner has mis-declared the value of imported goods. The petitioner deposited a sum of Rs.2 crores allegedly under the threat of arrest and to avoid seizure of goods lying at godowns and ports. In the writ petition, the petitioner claimed refund of the said amount of Rs.2 crores, release of goods and for quashing of the seizure memos. The petitioner has averred that for about last four years, it is importing EVA and DCP i.e. raw material of shoes and sleepers manufacturing units. Both products are petro-chemical products. The petitioner filed Bills of Entry declaring value, description and quantity etc. of the imported goods. The Customs Officers allowed clearance after passing final assessment orders. The petitioner has taken delivery of the goods from time to time. In some cases, the Assessing Officer enhanced the assessable value on the basis of value declared by other importers as well. As per the petition, the petitioner imported 14 consignments of 1843 metric tonnes of EVA at the price range from US$ 1100 to US$ 1156 per metric tonne in August-September, 2007. The Assessing Officer did not agree with the value declared by the petitioner and enhanced the same to US $ 1560 per metric tonne. The petitioner deposited the assessed value to avoid detention and demurrage charges under protest. However, no speaking order has been passed though requested by the petitioner. The petitioner again imported EVA and DCP in the month of March-June, 2008 and filed Bills of Entry. The petitioner was permitted the clearance of goods after assessment order was passed under Section 47 of Civil Writ Petition No.13914 of 2008 [3] the Customs Act, 1962 (hereinafter referred as the 'Act'). It was 10th July, 2008, the search operations were carried out as mentioned earlier. Though it is the case of the petitioner that a sum of Rs.2 crores was deposited by the petitioner under threat and coercion but no such grievance was made during the course of hearing. Still further, it was the pleaded case that the search has been carried out without recording reasons in respect of evasion of the duty. However, during the course of hearing, no such grievance was made. In fact, on 13th August, 2008, original record was produced by the respondents containing reasons for search of the premises of the petitioner and of seizure of the goods. A perusal of the petition further shows that on 15th July, 2008 (Annexure P-6), the petitioner has sought release of the goods seized against the deposit of Rs.2 crores. It was also pointed out therein that if the Department is not agreeable to release the seized consignments against the deposit of Rs.2 crores, provisional release of goods may kindly be considered against bond with 3rd party surety. For the consignments in pipeline, the petitioner prayed to consider the release the goods by provisional assessment against 3rd party surety. Such request was reiterated on 23rd July, 2008 (Annexure P-13). It was in response to such communications, the respondents communicated on 25th July, 2008 (Annexure P-14) that investigation in respect of evasion of the customs duty by the petitioner in respect of imports of EVA and DCP is still in progress and a show cause notice will be issued after completion of investigation. However, it was communicated that the request for provisional release of seized consignments has been accepted on the following terms and conditions:- Civil Writ Petition No.13914 of 2008 [4] 1. Payment of differential duty amounting Rs.1,34,99,633/- (after allowing adjustment of Rs.50 lakhs already deposited vide letter dated 10.07.2008). The calculation chart showing differential duty to be paid on the seized goods, seized vide panchnama dated 11.07.2008 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 11.07.2008. 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. The primary challenge of the petitioner is to be conditions No.2 and 3 of the aforesaid communication but also challenge has been made to condition No.1. On behalf of the respondents, it has been pointed out that even though the goods were assessed and cleared by Customs Officer in terms of Section 47 of the Act, but still, there is no bar for seizing of such goods in terms of Section 110 of the Act where reasons existed to believe that goods were liable to be confiscation under Section 111 of the Act. In the additional affidavit dated 19th August, 2008, it was inter alia averred to the following effect:- 7.1 Directorate of Revenue Intelligence, the respondent No.2, had received a specific intelligence that M/s. Kundan Rice Mills Ltd., the Civil Writ Petition No.13914 of 2008 [5] petitioner herein controlled by one Pradeep Garg, resident of B-324, Saraswati Vihar, Delhi-34 has been evading Customs Duty by way of under- invoicing EVA (Ethylene Vinyl Acetate) (CTH 39013000) and DCP (DICUMYL PEROXIDE) (CTH 29096000) imported by them. Accordingly, on 10.07.2008 the residential and office premises of the petitioner as well as of some of the customers of the petitioner and of the indenter of M/s Formosa Plastic, Taiwan at Delhi were searched and relevant records were resumed. Later on, goods valued at Rs.38 crores and Rs.40 lakhs respectively, were seized at Delhi and Panipat vide panchnamas under Section 110 of the Customs Act, 1962 on the reasonable belief that the same were liable to confiscation under the provisions of Customs Act, 1962. The preliminary statement of Shri Pradeep Garg, Managing Director of the petitioner was recorded under Section 108 of the Customs Act at his office in Prashant Vihar, Delhi on 10.07.2008, wherein he, inter alia, admitted that they never used to sign any contract with their overseas suppliers. Shri Pradeep Garg, the Managing Director of the petitioner voluntarily deposited Rs.2 crores towards differential customs duty evaded by the petitioner vide letter dated 10.07.2008 voluntarily. 7.2 The intelligence and investigation conducted so far revealed that the petitioner is importing EVA mainly from M/s Formosa Plastic, Taiwan, one of the World's largest manufacturers of EVA, M/s Asia Polymer Corporation, Taiwan and M/s TPI Polene Public Co. Ltd., Thailand. The petitioner is importing DCP from M/s Concord Chemical Ind. Co., Taiwan and M/s Coin Chemical Industrial Co. Civil Writ Petition No.13914 of 2008 [6] Ltd., Taiwan. The declared value of EVA imported by the petitioner ranged between USD 1276 to USD 1746 PMT for the financial year 2008-09 till now, whereas some other actual user importers like M/s Bata India Ltd., M/s Liberty, M/s Relaxo Foot Wear, M/s Diamond Product Ltd. etc. imported the same product from the same overseas suppliers during the same period by declaring value of EVA to the customs ranging from USD 1910 to USD 2530 PMT. The petitioner declared the price of DCP at the rate of USD 1100 PMT, whereas, the actual value of DCP in the international market is USD 4350 PMT. Earlier, the writ petition was allowed by this Court on September 5, 2008, whereby conditions No.2 and 3 were quashed and the goods were ordered to be released. It was found that there is nothing to show that even prima facie that goods are liable to confiscation. The said order has been set aside in appeal when the following order was passed by the Hon'ble Supreme Court:- “We find that while adjudicating an interim matter, the High Court has given a categorical finding on merits holding inter-alia that there is nothing to show that even prima facie, goods are liable to confiscation. The High Court appears to have decided the mater on merits finally even though that was not the stage for doing so and was beyond the scope of adjudication of the writ petition. This is not the way the High Court should have dealt with the matter. Apart from that, the High Court has not indicated any reason as to why the condition of execution of indemnity bond equivalent to seizure value of goods and/or furnishing of bank guarantee equal to 10% of value Civil Writ Petition No.13914 of 2008 [7] of goods, as was stipulated by the authorities, was not justified. This also adds to the vulnerability of the order. We set aside the impugned orders of the High Court. Let the High Court hear the maters afresh. To avoid unnecessary delay, let the parties appear before the High Court, without further notice, on 17.11.2008.” We have heard learned counsel for the parties after the matter was placed before us in terms of the Supreme Court's orders. Learned counsel for the petitioner has vehemently argued that redetermination in respect of short levy of customs duty has to be in terms of Customs (Provisional Duty Assessment) Regulations, 1963 (hereinafter referred to as the 'Regulations'). It is contended that provisional release of the goods can be ordered only on the basis of such Regulations. It is argued that Regulation 2 of the Regulations contemplates that the duty to the extent of not exceeding 20% can be called upon from the importer if the Custom Officer estimates the additional duty likely to be levied. Therefore, the conditions No.1, 2 and 3 now imposed are against such Regulations. The petitioner has also relied upon a judgment passed by Delhi High Court titled as 'M/s Bhaiya Fibres Ltd. Versus Additional Director General of Revenue Intelligence (Civil Writ Petition No.8787 of 2007), decided on December 19, 2007'. It is argued that the provisional release of goods and provisional assessment of goods are same in substance because provisional release of goods can be effected only on the basis of provisional assessment of goods. Therefore, respondents be directed to release provisionally, after permitting the petitioner to deposit an amount equivalent to 20% of the difference in the duty as sought to be assessed by the respondents on the basis of the prima facie value. Civil Writ Petition No.13914 of 2008 [8] The petitioner has also relied upon a Division Bench judgment of Delhi High Court reported as 'Vipul Overseas Pvt. Ltd. Versus Commissioner of Cus., ICD, TKD, New Delhi, 2006 (203) E.L.T. 366 (Del.) where the goods were permitted to be released on depositing a sum not exceeding 20% of the provisional duty so assessed. Reliance was also placed upon the judgment reported as Deputy Commissioner of Commercial Taxes versus M/s H.R.Sri Ramula, (1977) 1 SCC 703 to contend that once assessment is reopened, the initial order of assessment ceases to be operative. It is, thus, contended that the order passed under Section 47 of the Act ceases to be operative, therefore, in terms of Section 28 of the Act, it is at best a case of short levy of the customs duty. It is contended that such dispute in respect of short levy of duty cannot be termed as a case for confiscation of the goods. On the other hand, learned counsel for the respondents has argued that provisions of Section 18 of the Act deals with provisional assessment of duty leviable on goods pending production of documents when any further information is necessary for assessment of duty or the goods is pending chemical or the other test for the purpose of determination of proper duty. Section 28 of the Act empowers the competent officer to levy proper duty if the same has not been levied or has been short levied. It is contended that Sections 18 and 28 operate in different sphere i.e. when there is no allegation of evasion of duty intentionally but there is bona fide dispute in respect of quantum of levy of customs duty. On the other hand, under Section 111 (m) of the Act, if the goods do not correspond in respect of value or any other particulars disclosed in the Bills of Entry under the Act, such goods are liable to be Civil Writ Petition No.13914 of 2008 [9] confiscated, though the proper duty is to be quantified under section 28 of the Act. The penalty for short levy or non-levy of duty in terms of Section 114-A includes penalty equal to the duty or interest. It is contended that since the goods have been seized and the business and residential premises of the petitioner and its Directors searched for the reason to believe that the duty payable under the Act has been evaded, therefore, the goods are liable to be confiscated in terms of Section 111 (m) of the Act. The provisional release of such goods is dealt with under Section 110-A of the Act and not under Section 18 of the Act. Such provisional release of goods is in respect of goods liable to be confiscated, whereas in respect of proceedings under section 18 of the Act, the goods are not liable to the confiscated. Therefore, the respondents are justified in claiming surety of the equivalent value of the goods seized and also to ensure the payment of penalty or interest or redemption charges, as the case may be. It is, thus, contended that the communication (Annexure P-14) cannot be said to be illegal or arbitrary in any manner when the goods were decided to be released provisionally on the request of the petitioner itself. The judgment in Ramula's case (supra) does not help in deciding the issue raised in the present petition as it is relevant only to the extent previous assessment under section 47 of the Act ceased to exist. The judgment in Vipul Overseas Pvt. Ltd.'s case (supra) does not deal with the confiscation of goods under Section 111 of the Act. Therefore, the same is also not relevant. In M/s Bhaiya Fibres Ltd's case (supra), the objection of Directorate of Revenue Intelligence was with regard to valuation of goods which was subject matter of 12 Bills of Entry. The respondents have sought to justify the action of differential duty as well as indemnity bond Civil Writ Petition No.13914 of 2008 [10] and bank guarantee to the extent of 10% of the seizure value on the strength of Section 110-A of the Act, but, it appears that the case proceeded on the assumption that the goods are not liable to be confiscated. In any case, the distinction between confiscation of goods and provisional release under section 18 of the Act was not noticed. In the present case, the residential and business premises of the petitioner and its Directors has been searched. Search has been carried out after recording reasons for search. The goods have been seized as part of search and seizure process. Once search and seizure has been carried out, therefore, the issue whether the goods imported are under valued does not remain simplicitor dispute of under valuation of goods. It will be a matter of investigation whether goods are liable to be confiscated on account of intentional mis-declaration of the valuation of the goods or for any other cause. It is the stand of the respondents that the matter is under investigation. The petitioner has sought provisional release of goods on 15th July, 2008 soon after the search operation was carried out on 10th July, 2008. The order of provisional release of goods was passed on 25th July, 2008 pending investigation in respect of confiscation of goods. In the present case, search and seizure operations were carried out after recording of reasons and in respect of transaction for a period of four years. Such circumstances can not be said to be a bona fide dispute of value of goods alone which is now being termed as intentional mis- declaration of value of goods liable to be confiscated under section 111 (m) of the Act. Hon'ble Supreme Court in Union of India vs. Mustafa Trading Co. (1998) 6 SCC 79, while considering the scope of Section 111 of the Act, has held that mens rea is not essential for invoking the power of Civil Writ Petition No.13914 of 2008 [11] confiscation of the goods. It was also held that exercise of power of confiscation of goods under Section 111(d) and 111(f) of the Act can be exercised when the conditions prescribed in the said provision are fulfilled. Since the issue regarding confiscation of goods is pending investigation, we need not opine any further but the fact remains that the goods imported by the petitioner are liable to be confiscated on completion of investigation. The Regulations deal with assessment of the provisional duty. The said regulations would be relevant for the purpose of Section 18 of the Act. It is so apparent from the reading of the Notification dated 13th July, 1963 wherein the Regulations have been framed in exercise of the powers conferred by Section 157 of the Customs Act to give effect to provisions of Section 18 of the Act. Thus, such Regulations cannot be said to be relevant for release of goods which are liable to be confiscated under Section 111 (m) of the Act. The provisional release of goods which are liable to be confiscated are to be dealt with under Section 110-A of the Act. The provisions contemplates release with such security and conditions as the Commissioner of Customs may require. The Board has issued instructions on 7th July, 1997 and on 31st July, 2001 in respect of Customs Clearance / Provisional Release. Such instructions are contained in compilation Customs Law Manual, 35th Edition 2007-2008, Centax Publications. The relevant extract from Chapter 16 of the Customs Law Manual reads as under:- Guidelines for expeditious Customs clearance/ provisional release: “5. To avoid delays in the release and minimize hardship to importers which is caused if goods remain detained pending Civil Writ Petition No.13914 of 2008 [12] investigation into any dispute in relation to assessment, etc., a number of instructions have been issued recently. The stress is on expeditious assessment/ investigations and unless the goods are prohibited or involved in serious fraud even if there is a dispute in assessment, etc., provisional release option be given to the importers. Broadly the following guidelines are to be followed by importers/ officers of the Department to keep a check on unnecessary detention of goods and ensure speedy Customs clearance:- (a) Import / export goods are not to be detained by the Department unless prohibited as per the EXIM Policy and/ or under other allied laws. Goods are not to be detained on simple valuation or classification disputes. (b) If it becomes necessary to detain the goods for investigation of any serious suspected fraud, etc., the importer/ exporter must be intimated in writing that he may shift the goods to a bonded warehouse under section 49 of the Customs Act, 1962, with a clear indication that if he does not avail of this facility and the goods incur demurrage etc., he would have to bear the demurrage and other charges levied by the custodian/ other agencies. (c) But for certain exceptional categories, in any dispute case pending investigation wherever importer or exporter is willing, he should be allowed provisional clearance of the goods by furnishing a bond for full value of the goods supported by adequate bank guarantee as may be determined by the proper officer. (The value of bank guarantee shall not exceed twice the amount of duty). The provisional clearance should be allowed as a rule and not as an exception. However, in the following situations, provisional release may not be resorted to: (i)The prohibited goods whose import/ export are not in the interests of the country; (ii)imports which do not comply with the prescribed specifications / conditions/ requirements of various Orders/ Acts [e.g., those laid down under DGFT Notification Nos. 3 Civil Writ Petition No.13914 of 2008 [13] to 5/ (RE-2001)/1997-2002, dated 31-3-2001]; Livestock Importation Act, 1898, Prevention of Food Adulteration Act, 1954, etc.; (iii)where gross fraudulent practices are noticed and it is viewed that release of the consignment may seriously jeopardize further investigations as also interests of the revenue; In these situations also, as mentioned earlier, option for storage in warehouses under Section 49 should be provided to the importers. Goods can be allowed entry into the country only after the laid down quality standards, etc., are satisfied. (a) In the case of containerized cargo, wherever the parties are not in a position to execute bond and bank guarantee for taking provisional release or the Department is of the view that clearance cannot be allowed, the goods may be even de- stuffed from the containers after giving notice to all concerned and stored in port's godowns and warehouses to avoid container detention charges. (b) Whenever in adjudication proceedings, the parties have been allowed to clear the goods on payment of redemption fine and penalty and parties, instead of clearing the goods on payment of fine and penalty, prefer an appeal, they will have to pay demurrage / detention charges, etc., even if they succeed in appeal, as the liability has arisen due to their filing appeal and not clearing the goods for which option was available. (c) The officers will be held accountable for cases where detention of goods have been ordered on insufficient and weak grounds resulting in unconditional release of detained goods in adjudication stage itself, where importers have to suffer avoidable demurrage charges/ loss by pilferage, etc.” A perusal of the above guidelines would show that the goods are not to be detained on simple valuation or classification disputes. Civil Writ Petition No.13914 of 2008 [14] However, if it is a case of serious suspected fraud, the importer is to be informed to shift the goods to a bonded warehouse and to also allow provisional clearance of the goods by furnishing a bond for the full value of the goods supported by adequate bank guarantee. It is also contemplated that the provisional clearance should be allowed as a rule and not as an exception. The said guidelines are indicative of the fact that simplicitor dispute of valuation is to be dealt with separately than the issue suspecting fraud. The present is a case of fraudulent practice in respect of which reasons have been recorded and the business and the residential premises searched. The investigation into the manner and extent of fraudulent practice is under process. Therefore, in order to secure the interest of the Revenue, if the department has sought a bond for full value of the goods or a bank guarantee, the same cannot be said to be unjustified. Once the order of confiscation is passed, the Revenue is to realise the value of such goods as by that time the goods are out of the hands of the Revenue and, therefore, bond for full value of the goods is necessary consequence to the release of