2016 (5) TMI 83 - HC - Customs

Constitutionality of amended Section 129E of the Customs Act, 1962 - Imposition of exemplary penalty under Section 112 of the Customs Act - Improper importation of gold bars of foreign origin - Appellant contended that penalty imposed on the basis of value of smuggled gold could not have been made as gold is not a prohibited item nor is the import thereof prohibited by virtue of any notification or order under the Act of 1962 or any other law for the time being in force. Held that - there is a distinction between Section 111 and Section 112 of the Act. The former provides for confiscation of improperly imported goods and the latter prescribes the penalty for improper importation of goods. It is possible for a provision providing for confiscation of goods to be liberally interpreted, but when a provision provides for punishment it has to be strictly construed. The expression goods in respect of which any prohibition is in force in the context of Section 112 of the Act would imply goods which are prohibited from being imported and not goods which have been smuggled into the country in contravention of the procedure established by law for the import thereof. Thus, while the corresponding provision in Section 111 of the Act permits the confiscation of the goods on a broader construction of the relevant expression with reference to the definition of prohibited goods ; the similar provision in Section 112 of the Act has to be strictly construed and confined to goods which are expressly prohibited from being imported into the country. Therefore, the order impugned in so far it imnposes the penalty on either petitioner based on the value of the goods, is set aside and the matter remanded for such limited purpose for the imposition of such other quantum of penalty that may be permissible. - Decided in favour of appellant to limited extent

Summary

Issues:
Challenge to constitutionality of amended Section 129E of the Customs Act, 1962 abandoned; Imposition of penalty under Section 112 for improper importation of gold bars of foreign origin; Interpretation of the expression "goods in respect of which any prohibition is in force" under Section 112; Distinction between illegal import of goods and prohibited goods; Construction of penal provisions strictly; Remand for reconsideration of penalty quantum.

Analysis:
The petitions raised a common issue challenging the constitutionality of amended Section 129E of the Customs Act, 1962, but this challenge was abandoned to pursue the petitions on the grounds of lack of jurisdiction. The Commissioner of Customs imposed an "exemplary penalty" on the petitioners for improper importation of gold bars under Section 112 of the Act. The penalty was based on the clause allowing a penalty not exceeding the value of the goods or five thousand rupees, whichever is greater, for improperly bringing in goods subject to prohibition.

The key legal question was whether the expression "goods in respect of which any prohibition is in force" under Section 112 refers to goods specifically prohibited from importation or includes goods smuggled into the country. The Customs authorities alleged that the petitioners were involved in smuggling gold based on intelligence inputs. The penalty imposed on the petitioners was challenged on the basis that gold is not a prohibited item for import, and thus, penalty should be based on duty evasion rather than the value of the smuggled goods.

The Union argued that any import of goods in a manner contrary to the statutory process amounts to conduct infringing import prohibitions. Reference was made to various provisions and regulations under the Act, as well as the Foreign Trade (Development and Regulation) Act, 1992. Previous judgments were cited to support the position that smuggled goods cannot be considered dutiable goods and that a strict interpretation of penal provisions is required.

The Court held that the expression "goods in respect of which any prohibition is in force" in Section 112 refers to goods expressly prohibited from importation and not goods smuggled into the country. The penalty imposition based on the value of the goods was set aside, and the matter was remanded for reconsideration of the penalty quantum. The petitions were allowed to the limited extent indicated, with no order as to costs.

In conclusion, the judgment clarified the interpretation of the relevant provision under the Customs Act, emphasizing the distinction between prohibited goods and illegally imported goods. The Court's decision highlighted the importance of strict construction of penal provisions and the need for clarity in determining penalties for improper importation.