2011 (3) TMI 1395 - HC - Customs

Actual user condition - Concessional rate of duty as per the Notification No. 33 of 2010, dated 12-3-2010 - investigation - petitioner is using the benefit of the notification by importing maize at concessional rate against the terms of licence and mainly on the ground that the petitioner is not having a manufacturing unit of its own at Chennai and therefore, it amounts to deliberate deception by the petitioner - while applying for a licence, the appellants set out the components they would use and heir value - Held that - value which had been indicated in the application was very large whereas what was actually spent was a paltry amount, licensing Authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the customs authorities cannot refuse exemption on an allegation hat there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf, licensing authority has not taken any appropriate action as per the recommendations of the second respondent, it is not possible to accept the contention of the learned counsel for the second respondent as if the petitioner must be disentitled from effecting import or the petitioner should be imposed with certain burden for the purpose of effecting import, viz., requiring it to pay 50% of the customs duty. At this point of time, it is relevant to state that till date the customs duty has yet been assessed by the competent authority, writ petition succeed

Summary

Issues Involved:
1. Validity and interpretation of the term "actual user" under the import license.
2. Jurisdiction and authority of the second respondent (Director of Revenue Intelligence) to investigate and take action.
3. Obligations and indemnities under the contract between the petitioner and the first respondent.
4. Compliance with the terms and conditions of the import license and relevant notifications.
5. Appropriate legal procedures and adjudication process under the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Validity and Interpretation of the Term "Actual User" under the Import License:
The petitioner argued that the term "actual user" does not necessitate the petitioner to use the imported goods for manufacturing but includes activities like re-packing, which qualifies as processing under the Foreign Trade Policy. The court noted that the term "actual user" is defined in Clause 9.4 of the Foreign Trade Policy and includes both industrial and non-industrial users. The court emphasized that these rival submissions regarding the term "actual user" are to be decided by the licensing authority upon investigation and adjudication.

2. Jurisdiction and Authority of the Second Respondent to Investigate and Take Action:
The second respondent issued summons under Section 108 of the Customs Act, 1962, suspecting the petitioner of violating the terms of the import license by not having a manufacturing unit. The court acknowledged that the second respondent has the jurisdiction to investigate but must follow the provisions of the Act. The court cited the Supreme Court's judgment in Titan Medical System Private Limited v. Collector of Customs, New Delhi, which held that any misrepresentation must be addressed by the licensing authority, not the customs authorities.

3. Obligations and Indemnities under the Contract between the Petitioner and the First Respondent:
The petitioner had entered into an agreement with the first respondent, who acted as an agent for importing maize. The agreement included an indemnity clause (Clause 23), where the petitioner agreed to indemnify the first respondent against any loss or liability arising from the import activities. The court noted that the petitioner had also given a specific indemnity undertaking on 10-2-2011 to keep the first respondent indemnified against any loss or claim.

4. Compliance with the Terms and Conditions of the Import License and Relevant Notifications:
The court observed that the import license issued by the Director General of Foreign Trade was subject to "actual user" conditions and had to be completed by 31-3-2011. The second respondent alleged that the petitioner breached these conditions by not having a manufacturing unit. The court held that the licensing authority must determine the validity of the license and any breach of conditions, as per the judgment in Commissioner of Customs (E.P.) v. Jupiter Exports.

5. Appropriate Legal Procedures and Adjudication Process under the Customs Act, 1962:
The court emphasized that the adjudication process under the Customs Act, 1962, must be followed, including issuing a show cause notice under Section 28 and Section 124 before confiscation of goods or imposition of penalties. The court noted that no such proceedings had been initiated by the second respondent or the licensing authority. The court directed the second respondent to hand over the original license to the first respondent to enable the import, while allowing the second respondent to complete the investigation and make necessary recommendations to the licensing authority.

Conclusion:
The writ petition was allowed, directing the first respondent to retrieve the original license from the second respondent, enabling the import in accordance with the contract terms. The second respondent was permitted to continue the investigation as per the law, and the first respondent was absolved of any liability.