2014 (4) TMI 150 - HC - Customs

Release of the seized goods Software seizure - diamond cutting and polishing machineries would require sophisticated software for operation - Appropriate condition of release Whether bank guarantee required if three crores of rupees already recovered - Held that - Use of the software should be allowed to the petitioner by relaxing the rigourous conditions imposed by the authorities in the said two orders permitting provisional release - When service tax authorities have already collected nearly three crores of rupees towards possible duty liability, insisting that the petitioner provides further bank guarantee would not be appropriate. When a sizeable sum of ₹ 3 crores is already recovered by one arm of the Union of India, further condition of bank guarantee merely for using the software pending further investigation and possible adjudication would not be justified - It is directed that the petitioner would be allowed to utilize such seized machinery along with the installed software for its manufacturing activity in the machines imported and installed at its Surat unit on conditions - Remaining conditions of supratnama as well as the provisional release orders except furnishing bank guarantee shall remain in operation. Territorial jurisdiction Held that - The petitioner has manufacturing unit at Surat - It has its machinery and software at Surat - The goods were seized at Surat by the DRI, Surat - The goods have been returned under supratnama also at Surat Thus it cannot be said that no part of cause of action had arisen within the territorial jurisdiction of this Court - The petition is disposed of with the given directions Decided in favour of Petitioner.

Summary

Issues:
1. Duty liability on imported software
2. Conditions for releasing seized goods
3. Jurisdiction of the Court

Analysis:
1. Duty liability on imported software:
The petitioner, a diamond cutting company, imported machineries requiring sophisticated software for operation. The Customs department initiated an investigation into the duty liability on the imported software, suspecting that customs duty was evaded by not including the software price in the machinery's value. The petitioner sought to use the software for manufacturing activities, arguing that the Directorate General of Central Excise Intelligence (DGCEI) had already recovered a significant sum towards possible duty liability. The Court opined that the software could be subject to service tax or customs duty, and directed the petitioner to give a bond for the full value of the goods to utilize the seized machinery with the installed software for manufacturing activities.

2. Conditions for releasing seized goods:
The authorities had initially seized the goods, later returning them under specific conditions for safekeeping. The Customs department ordered provisional release of the goods with stringent conditions, including submission of bonds, bank guarantees, and undertakings regarding the goods' identity and description. The Court modified these conditions, allowing the petitioner to use the software for manufacturing activities by providing a bond for the full value of the goods, refraining from selling or transferring the goods, and filing an undertaking within a week. The Court also prohibited the petitioner from receiving any amount recovered by DGCEI without notifying the Customs authorities.

3. Jurisdiction of the Court:
The department argued that the Court lacked territorial jurisdiction since the provisional release orders were issued by Customs authorities in Mumbai. Citing precedent, the Court noted that the petitioner's manufacturing unit, machinery, and software were located in Surat, where the goods were seized and returned. Therefore, the Court asserted that part of the cause of action had arisen within its territorial jurisdiction, ultimately disposing of the petition with the directions provided for utilizing the seized machinery with the software at the Surat unit.