2013 (4) TMI 540 - HC - Customs

Sale proceeds of smuggled goods - Whether pay orders though obtained in respect of genuine transactions but not encashed represented sale proceeds of smuggled goods? - orders for confiscation of pay orders with penalty levied - Held that - On plain reading of Section 121 of the 1962 Act, it is clear that the confiscation of the sale proceeds under Section 121 would be permissible, provided, firstly, there must be sale of smuggled goods, and secondly, the person selling the said goods must have knowledge or reason to believe that the goods are smuggled goods. In the present case, the finding of fact recorded by the adjudicating authority is that the foreign currencies were sold by the assessee in the normal course of the business. If the foreign currencies were sold by the assessee in the normal course of the business, then obviously it cannot be said that the assessee has sold the smuggled goods, because it was not the business of the assessee to sell smuggled goods. Moreover, in the present case, the adjudicating authority has declined to impose penalty on the assessee on the ground that the assessee had no knowledge that the foreign currencies were going to be smuggled out of India and that there was no breach of the provisions of the 1962 Act committed by the assessee. Therefore, if the assessee has neither sold the smuggled goods (foreign currencies) nor the assessee had any knowledge that the foreign currencies are going to be smuggled out of India, the question of invoking Section 121 of the 1962 Act does not arise at all. The decision of this Court in the case of LKP Merchant Financing Ltd. (2010 (1) TMI 610 - BOMBAY HIGH COURT) would be squarely applicable to the facts of the present case as so long as the pay orders represent the sale proceeds of the foreign currencies sold by the assessee in the ordinary course of business and the foreign currencies sold by the assessee were not smuggled goods, the amounts under the pay orders cannot be confiscated as sale proceeds of the smuggled goods. Appeals allowed by quashing the impugned orders and the respondents are directed to refund the amounts under the pay-orders with interest quantified @ 6% per annum from the date of encashment of the pay orders till payment.

Issues Involved:
1. Interpretation of Section 121 of the Customs Act, 1962.
2. Whether pay orders received by the appellants for the sale of foreign exchange in genuine transactions can be considered "sale proceeds of smuggled goods."
3. The right of appellants to claim amounts represented by pay orders.
4. Whether payment by bank draft/pay order is equivalent to cash payment.

Detailed Analysis:

1. Interpretation of Section 121 of the Customs Act, 1962:
The court examined whether the amounts under the pay orders seized from the appellants could be confiscated under Section 121 of the Customs Act, 1962. Section 121 allows confiscation of sale proceeds of smuggled goods if the seller knew or had reason to believe the goods were smuggled. The adjudicating authority found that the foreign currencies were sold in the ordinary course of business without any knowledge that they would be smuggled out of India. Therefore, the court concluded that the conditions for confiscation under Section 121 were not met, as the sale was legitimate and without knowledge of any smuggling activities.

2. Whether pay orders received by the appellants for the sale of foreign exchange in genuine transactions can be considered "sale proceeds of smuggled goods":
The court held that the pay orders received by the appellants represented the sale proceeds of foreign currency sold in the ordinary course of business. The adjudicating authority had already established that the appellants had no knowledge that the foreign currencies would be smuggled. Consequently, the amounts under the pay orders could not be considered as "sale proceeds of smuggled goods."

3. The right of appellants to claim amounts represented by pay orders:
The court addressed the appellants' locus standi to claim the amounts under the pay orders. The Tribunal had previously held that the appellants had no locus standi, based on the Wall Street Finance Ltd. case. However, this decision was overruled by the High Court, which affirmed that the appellants were entitled to claim the amounts under the pay orders, as they were received in the ordinary course of business.

4. Whether payment by bank draft/pay order is equivalent to cash payment:
The court considered whether pay orders, which were not encashed, could be treated as equivalent to cash payments. The court concluded that once pay orders are issued and handed over to the appellants in exchange for foreign currency, the amounts under the pay orders represent the sale proceeds of the foreign currency. Therefore, the amounts should not be confiscated unless it is proven that the foreign currency sold was smuggled, which was not the case here.

Conclusion:
The court quashed the orders of the CESTAT, ruling that the appellants had the right to claim the amounts under the pay orders. The amounts represented legitimate sale proceeds of foreign currency sold in the ordinary course of business. The respondents were directed to refund the amounts with interest at 6% per annum from the date of encashment of the pay orders until payment. The appeals were allowed, with no order as to costs.

← Previous Next →