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October 19, 2020

Holding of goods without order of seizure is invalid – HC

by CA Shivam Jaiswal in GST, Legal Court Judgement

Holding of goods without order of seizure is invalid – HC

Chapter XIV of the Customs Act pertains to Confiscation of goods and conveyances and imposition of penalties. According to Section 111, the following goods brought from a place outside India shall be liable to confiscation:

a. any goods imported by sea or air which are unloaded or attempted to be unloaded at any place other than a customs port or customs airport appointed under section 7(a) for the unloading of such goods

b. any goods imported by land or inland water through any route other than a route specified in a notification issued under section 7(c) for the import of such goods

c. any dutiable or prohibited goods brought into any bay, gulf, creek or tidal river for the purpose of being landed at a place other than a customs port

d. any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force

e. any dutiable or prohibited goods found concealed in any manner in any conveyance

f. any dutiable or prohibited goods required to be mentioned under the regulations in an import manifest or import report which are not so mentioned;

g. any dutiable or prohibited goods which are unloaded from a conveyance in contravention of the provisions of section 32, other than goods inadvertently unloaded but included in the record kept under section 45(2)

h. any dutiable or prohibited goods unloaded or attempted to be unloaded in contravention of the provisions of section 33 or section 34

i. any dutiable or prohibited goods found concealed in any manner in any package either before or after the unloading thereof

j. any dutiable or prohibited goods removed or attempted to be removed from a customs area or a warehouse without the permission of the proper officer or contrary to the terms of such permission

k. any dutiable or prohibited goods imported by land in respect of which the order permitting clearance of the goods required to be produced under section 109 is not produced or which do not correspond in any material particular with the specification contained therein

l. any dutiable or prohibited goods which are not included or are in excess of those included in the entry made under this Act, or in the case of baggage in the declaration made under section 77

m. any goods which do not correspond in respect of value or in any other particular with the entry made under this Act or in the case of baggage with the declaration made under section 77

n. any dutiable or prohibited goods transited with or without transhipment or attempted to be so transited in contravention of the provisions of Chapter VIII

o. any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer

However, can such goods be confiscated, if there is no order of seizure for the same. Let us refer to the case of Ganesh Benzoplast Ltd. Vs Union of India (Bombay HC), where goods were confiscated and held without order of seizure/ confiscation.

Facts of the Case:

  • Petitioner is a public limited company registered under the Companies Act and is a leading liquid infrastructure storage company and is also a manufacturer, exporter and importer of chemicals. It also acts as agent on behalf of suppliers.
  • Central Government through the Ministry of Chemicals and Fertilizers, Department of Chemicals and Petrochemicals issued an order called the Bureau of Indian Standard (Caustic Soda) Order, 2018.
  • As per the said order, it was made mandatory that caustic soda should conform to Indian Standard IS 252:2013 whether it is manufactured in India or imported.
  • The aforesaid order would come into force on the date of its publication in the official gazette. The said order was published in the Gazette of India, Extraordinary on 03.04.2018.
  • According to the petitioner, the manufacturer in Iran (M/s. Aravand Petrochemical Company) who intended to supply caustic soda to India, applied to the BIS on 09.10.2018 for a licence indicating that the product manufactured by them and which would be imported into India conform to IS 252:2013 standard specification.
  • A consignment of caustic soda was imported by the petitioner from M/s. Mena Energy, Dubai, vide bill of entry dated 01.11.2018.
  • M/s. Mena Energy (supplier) had procured the aforesaid quantity of caustic soda from the manufacturer in Iran i.e., M/s. Aravand Petrochemical Company (foreign manufacturer) vide IGM dated 26.10.2018.\
  • Certain quantity of the imported goods was sold by the petitioner.
  • The balance quantity remained discharged into petitioner’s tank terminal under the overall custody of the Customs Department. The goods so imported did not have the BIS standard marking of IS 252:2013.
  • Taking the view that non-compliance with the Central Government order dated 03.04.2018 making BIS standard marking IS 252:2013 mandatory placed the imported goods under the category of prohibited goods, the same was seized by the departmental authority.
  • Following show cause notice and hearing, order-in-original was passed ordering confiscation of the seized goods and imposition of penalty.

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Appeal to Commissioner of Customs (Appeals)

  • As per the order-in-original the goods in question were confiscated and penalty imposed, the said order was set aside in appeal by the Commissioner of Customs (Appeals) vide the order-in-appeal.
  • After setting aside the order-in-original, appellate authority remanded the matter back to the original authority directing the latter to draw fresh samples of the goods in question and get the same tested through a BIS accredited laboratory to ascertain whether the goods conformed to IS 252:2013 specification or not, with the further direction that if the goods conformed to the above specification then the goods should be cleared.
  • Following the order-in-appeal, fresh samples of the goods were drawn and tested in a BIS accredited laboratory.
  • Test report indicated that the goods conform to IS 252:2013 standard specification.
  • Notwithstanding the same, original authority had not passed the fresh order-in-original as directed by the appellate authority. The goods were also not released to the petitioner.
  • Non-release of goods was justified and defended by the respondents on the ground that the Department had filed appeal against the order-in-appeal before the CESTAT.

Observations of High Court (HC) on the contention of the respondents that after the amendment in year 2001 the power of remand which was earlier available to the Commissioner of Customs (Appeals) has been withdrawn and therefore Commissioner of Customs (Appeals) had no power to remand

As per section 128(1) of the Customs Act, any person aggrieved by a decision or order passed under the said Act by an officer of customs lower in rank than a Principal Commissioner of Customs or Commissioner of Customs may appeal to the Commissioner (Appeals) within 60 days from the date of communication of such decision or order which period is extendable on sufficient cause being shown. Section 128(1A) provides that the appellate authority may grant adjournment of the hearing to either parties, subject to a maximum of three adjournments per party.

According to Section 128A(3), the Commissioner (Appeals) shall, after making such further inquiry as may be necessary, pass such order, as he thinks just:

  • confirming, modifying or annulling the decision or order appealed against; or
  • referring the matter back to the adjudicating authority with directions for fresh adjudication or decision, as the case may be, in the following cases:
    1. where an order or decision has been passed without following the principles of natural justice or
    2. where no order or decision has been passed after re-assessment under section 17 or
    3. where an order of refund under section 27 has been issued by crediting the amount to Fund without recording any finding on the evidence produced by the applicant.

An order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order.

Where the Commissioner (Appeals) is of opinion that any duty has not been levied or has been short-levied or erroneously refunded, no order requiring the appellant to pay any duty not levied, short-levied or erroneously refunded shall be passed unless the appellant is given notice within the time-limit specified in section 28 to show cause against the proposed order.

After the amendment the said sub-section read that the Commissioner (Appeals) shall, after making such further inquiry as may be necessary, pass such order, as he thinks just and proper, confirming, modifying or annulling the decision or order appealed against.

An order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order

Where the Commissioner (Appeals) is of opinion that any duty has not been levied or has been short-levied or erroneously refunded, no order requiring the appellant to pay any duty not levied, short-levied or erroneously refunded shall be passed unless the appellant is given notice within the time-limit specified in section 28 to show cause against the proposed order.

From the above it can be seen that prior to the amendment it was specifically mentioned that Commissioner (Appeals) could refer the matter back to the adjudicating authority for fresh adjudication or decision only in three situations. By the 2001 amendment, the power of remand was omitted, thus limiting the power of Commissioner (Appeals) to confirming, modifying or annulling the decision or order appealed against.

Amended Section 128A(3) stated that Commissioner (Appeals) after hearing the appeal shall pass such order as he thinks just and proper confirming, modifying or annulling the decision or order appealed against.

For instance, if an order-in-original is passed in violation of the principles of natural justice or there is procedural impropriety or relevant materials have not been considered then the appropriate order in such a case would be to set aside the order-in-original and direct the original authority to pass a fresh order after hearing the parties or by removing the procedural defects or by considering the relevant materials.

Therefore, when HC says ‘modifying’ or ‘annulling’ the decision or order appealed against, it would indicate setting aside of the impugned order and in an appropriate case remanding of the matter back to the original authority for fresh decision by removing the lacuna and by following the due procedure. In HC’s opinion, this power of remand is inherent in an appellate authority exercising quasi-judicial powers. The power of remand which was available prior to the amendment was very limited; exercise of which was restricted to only three situations; by omitting this provision the limitation or restriction on remand has now been removed.

Reference to older case

  • Gujarat HC in CCE Vs. Medico Labs, 2004 was confronted with the question as to whether Commissioner (Appeals) continued to have the power of remand even after the amendment of section 35-A(3) of the Central Excise Act, 1944 by Finance Act, 2001.
  • It was held that even after amendment of section 35­A of the Central Excise Act, 1944 which is pari materia to the provisions contained in section 128-A(3) of the Customs Act, Commissioner (Appeals) continued to have the power of remand post 2001.
  • It was opined that order of remand necessarily annuls the decision under appeal before the appellate authority.
  • CESTAT in the case of Commissioner of Customs Vs. Swapan Dey, 2005, followed the above decision and has held that Commissioner (Appeals) has the power to remand a matter to the lower authority even after the amendment in section 128A(3) of the Customs Act.
  • HC was in agreement with the views expressed in Medico Labs and in Swapan Dey. Such a view was logical and reasonable considering the exercise of appellate jurisdiction by Commissioner (Appeals).
  • Any other view would be restrictive to the exercise of appellate jurisdiction and would be unsound. HC therefore found the contention of the respondents to be unsustainable and accordingly rejected the same.

Observations of the High Court (HC) on the contention of the respondents that due to pendency of appeal before CESTAT, the relief sought for by the petitioner for release of goods, should not be granted.

  • Section 129A provides for appeals to Appellate Tribunal. As per sub-section (1), any person aggrieved by any of the orders mentioned therein may appeal to the Appellate Tribunal against such order.
  • Sub-section (2) provides for a Committee of Commissioners of Customs to examine amongst others an order passed by the Commissioner (Appeals) under section 128-A as to whether it is not legal or proper in which event to direct the proper officer to file appeal before the CESTAT against such order.
  • Sub-section (3) is relevant and it says that every appeal under section 129-A shall be filed within 3 months from the date on which the order sought to be appealed against is communicated.
  • As per sub-section (5), CESTAT may admit an appeal after expiry of the relevant period if it is satisfied that there was sufficient cause for not presenting it within the limitation period.
  • What is crucial from the above is that an appeal to CESTAT has to be filed within 3 months from the date of communication of the order sought to be appealed against with the period of limitation extendable on sufficient cause being shown.
  • Therefore, what is of relevance is that the limitation of 3 months commences from the date on which the order sought to be appealed against is communicated and not from the date of decision or opinion rendered by the Committee of Commissioners under sub-section (2).
  • The order-in-appeal was communicated to the respondents prior to 08.01.2020. However, as the respondents had not mentioned the date of communication of the order-in-appeal, HC took 08.01.2020 as the date of communication.
  • The 3 months limitation period would be up to 07.04.2020.
  • The appeal was filed along with stay application before CESTAT on 24.06.2020.
  • The above clearly revealed complete lack of any urgency or seriousness on the part of the respondents.
  • While delayed filing of appeal can be explained to a certain extent due to the lockdown on account of coronavirus pandemic, it was inexplicable that Committee of Commissioners took more than two months from first week of January, 2020 to 20.03.2020 to decide whether appeal should be filed before CESTAT or not.
  • This coupled with the fact that respondents did not contest the appeal of the petitioner before the Commissioner (Appeals) renders the objection raised by the respondents suspect.
  • Though the appeal along with stay application was filed before the CESTAT on 24.06.2020, neither the appeal was admitted nor was any stay been granted to the order-in-appeal.
  • Not even a notice has been issued though urgent matters including stay applications are being heard by CESTAT through video conferencing.
  • Order-in-original dated 22.11.2019 was set aside by the order-in-appeal dated 20.12.2019 with further direction to the original authority to conduct test afresh of the goods in BIS accredited laboratory and if the goods confirmed to IS 252:2013 standard specification then to release the same.
  • Whatever would be the outcome of testing, fresh order-in-original was directed to be passed by the original authority within six weeks.
  • While the test was conducted the result of which shows the goods as conforming to IS 252:2013 standard specification, the fresh order-in-original has not been passed by the original authority though the period of six weeks expired long back.

Observations of the High Court (HC) on whether the goods of the petitioner should be released or not

  • There are two legal implications which emerge from the above.
  • First one is what is the legal effect of setting aside of the order-in-original by the appellate authority and the second is non-passing of fresh order-in-original by the original authority on remand by the appellate authority.
  • In the present case there was no dispute that by the order-in-appeal dated 20.12.2019, the order-in-original dated 22.11.2019 was set aside.
  • By the order-in-original the goods in question were confiscated. After the order-in-original is set aide, the order of confiscation no longer survives.
  • When an order is set aside by a superior authority or appellate authority, the consequence thereof is that such an order loses its effectiveness and becomes inoperative.
  • Therefore, it was evident that after the order-in-original has been set aside there is now no order of confiscation of the goods.
  • While power of seizure is provided in section 110 of the Customs Act, section 111 deals with confiscation of improperly imported goods.
  • As per section 110(1), if the proper officer has reason to believe that any goods are liable to confiscation under the Customs Act, he may seize such goods.
  • Therefore, seizure is made if the proper officer has reason to believe that any goods is liable to confiscation. Thus, seizure may be said to be the first step to confiscation.
  • So, when the order of confiscation is set aside, the order of seizure cannot survive.
  • The legal implication of this is that without any order of seizure or confiscation, respondents are holding on to the goods of the petitioner. Such holding on is clearly without any authority of law and per se illegal.
  • In fact, such an action may amount to deprivation of the petitioner of his property without any authority of law and thus violative of Article 300A of the Constitution of India.
  • Coming to the second issue, it was also evident that the original authority had not passed the fresh order-in-original on remand as directed by the Commissioner (Appeals), not to speak of within the stipulated period of 6 weeks but even till date though fresh testing of goods has been carried out which incidentally has turned out in favour of the petitioner.
  • It was important to note was that the original authority who is a subordinate authority in comparison to the appellate authority i.e., Commissioner (Appeals) had chosen not to comply with the direction of the higher appellate authority exercising quasi-judicial.
  • Therefore, HC was of the view that non-release of the goods of the petitioner by the respondents was without any justification and was liable to be interfered with.
  • HC directed the respondents to release the goods i.e., caustic soda of the petitioner imported vide bill of entry forthwith without any delay.

In simple words, if the proper officer has reason to believe that any goods are liable to confiscation under the Customs Act, he may seize such goods. Seizure may be said to be the first step to confiscation. So, when the order of confiscation is set aside, the order of seizure cannot survive. Without any order of seizure or confiscation, respondents cannot hold on to the goods of the petitioner. Such holding on is clearly without any authority of law and per se illegal.

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