2013 (3) TMI 29 - HC - Customs

Warehoused goods - Issuance of duty remission certificate - goods destroyed during cyclone - held that - Section 23 provides for cases where and under circumstances in which duty remission would be available. - Section 72, as noted, pertains to goods improperly removed from warehouse etc. - Upon happening of the events envisaged under clause (b) of sub-section (1) of Section 72 of the Act, the liability of the petitioners to pay duty on the goods arose, any subsequent event such as loss or destruction of the goods thereafter would not alter the situation. Extended period of limitation - held that - notice for recovery of the customs duty is hopelessly belated. Nothing has been brought on record to suggest that due to pendency of the petition and out of due deference to the court in view of pending disputes, the Department did not issue the show-cause notice. - initial inaction on part of the customs authorities for four years before the petition was filed by itself must be seen as unreasonable delay on their part. Further, the notice is rather vague and general. No specific details have been given as to why such duty is payable in terms of Section 72(1)(b) and (d) of the Act. We may recall that clause (d) of sub-section (1) of Section 72 pertains to a case where bond has been executed and the goods are not accounted for to the satisfaction of the proper officer. Show cause notice quashed - Decided in favor of assessee.

Summary

Issues Involved:
1. Entitlement to duty remission under Section 23 of the Customs Act.
2. Validity of the show-cause notice dated 12-4-2011.
3. Liability of the Central Warehousing Corporation (CWC) and the insurance company to pay customs duty.

Issue-wise Detailed Analysis:

1. Entitlement to Duty Remission under Section 23 of the Customs Act:

The petitioners argued that they were entitled to a duty remission certificate from the customs authorities as the goods were destroyed before clearance for home consumption due to a cyclone. They relied on Section 23 of the Customs Act, which provides for remission of duty on lost or destroyed goods before clearance.

The court examined the statutory provisions and noted that Section 23(1) mandates remission of duty if goods are lost or destroyed before clearance for home consumption. However, this provision must be read in conjunction with other relevant sections, particularly Section 72, which deals with the collection of duty under circumstances other than regular clearance. The court found that the petitioners' liability to pay duty had crystallized under Section 72(1)(b) because the goods were not removed from the warehouse within the permitted period. Consequently, the destruction of the goods after the duty liability had crystallized did not alter the situation, and the petitioners were not entitled to remission under Section 23.

2. Validity of the Show-Cause Notice Dated 12-4-2011:

The petitioners contended that the show-cause notice was vague, inspecific, and issued after an unreasonable delay. They argued that the notice did not compute the duty demand or provide reasons for the demand and that it was issued well beyond the reasonable period for recovery of unpaid duty.

The court agreed with the petitioners, noting that the Customs Department had not taken any steps to recover the duty for nearly four years before the petition was filed. Even after the petition was filed, there was no stay against the issuance of a show-cause notice or recovery of duty, yet the department remained inactive for over ten years. The court held that the notice was hopelessly belated and must fail on this ground. Additionally, the court found the notice vague and general, lacking specific details and computation of the duty amount.

3. Liability of the Central Warehousing Corporation (CWC) and the Insurance Company to Pay Customs Duty:

The petitioners argued that the CWC and the insurance company should pay any duty liability as the goods were insured for their value and duty. They claimed that the CWC had received the insurance amount but did not release it due to warehousing dues.

The court rejected this contention for several reasons:
1. The duty liability had not yet been determined, making the petitioners' claim premature.
2. The claim arose from a contractual relationship between the petitioners and the CWC, with no privity of contract between the petitioners and the insurance company. Such a claim could not be enforced through a writ petition.
3. The insurance company was entitled to raise objections and defenses based on the terms of the insurance policy, which could not be adjudicated in a writ petition.

Conclusion:

The court quashed the impugned show-cause notice primarily on the ground of unreasonable delay in issuing the notice. The petition was allowed to this extent, and the rule was made absolute with no costs.