2009 (4) TMI 83 - HC - Customs

Violation of conditions of the Annual Advance Licence r/w customs Notification No.48/99 - Actual User Condition Exemption - licence was obtained by giving a false information that they have a factory for manufacture of the export product - petitioners imported Staple Pins without a valid licence - Tribunal fell in error in permitting the clearance of the goods on merit rate By doing so the Tribunal has virtually set at naught the purpose behind issuance of an exemption notification confiscation and penalty is justified

Summary

Issues Involved:
1. Violation of conditions of the Advance Licence and applicability of section 111(o) of the Customs Act 1962.
2. Liability of the second respondent to pay penalty under section 112(a) of the Customs Act 1962.

Issue-wise Detailed Analysis:

1. Violation of Conditions of the Advance Licence and Applicability of Section 111(o) of the Customs Act 1962:

The second respondent imported copper scrap under the Advance Licence scheme, benefiting from Notification No.48/99-CUS, which allowed duty-free import subject to certain conditions, including the actual user condition and export obligations. The Department alleged that the second respondent falsely claimed to have a manufacturing unit, which was non-existent, thus violating the conditions of the licence. A show cause notice was issued, and the Adjudicating Authority found the second respondent guilty of mis-declaration, leading to the confiscation of goods under section 111(o) and imposition of a penalty under section 112(a).

The Tribunal reversed this decision, stating that the proceedings were premature as the licence period had not expired when the goods were seized. It held that the Customs Authority could not refuse exemption based on an allegation of misrepresentation without the licence being cancelled by the Licensing Authority. The Tribunal relied on the Supreme Court's judgment in Union of India vs. Sampat Raj Dugar, which stated that subsequent cancellation of a licence does not retrospectively render the import illegal.

However, the High Court disagreed with the Tribunal's findings, emphasizing that the misrepresentation by the importer was undisputed. The Court held that the false declaration about having a manufacturing unit rendered the licence null and void, making the imported goods liable for confiscation under section 111(o). The Court cited the Supreme Court's decision in Sheshank Sea Foods Pvt. Ltd. vs. UOI, which upheld the Customs Authorities' power to take action under section 111(o) for breach of exemption conditions.

2. Liability of the Second Respondent to Pay Penalty under Section 112(a) of the Customs Act 1962:

The Adjudicating Authority imposed a penalty on the second respondent under section 112(a) for the mis-declaration and violation of licence conditions. The Tribunal, however, held that if the goods were not liable for confiscation, the penalty under section 112(a) would not arise. It allowed the goods to be cleared on merit rate, referencing a similar case where goods were cleared despite the licence being cancelled.

The High Court found that the Tribunal erred in its decision. The Court reiterated that the importer's false declaration and lack of a manufacturing unit justified the confiscation of goods and imposition of a penalty. The Court emphasized that the fraudulent method used to secure the licence invalidated any claim to exemption or equitable relief. The Court set aside the Tribunal's order, reinstating the penalty imposed by the Adjudicating Authority.

Conclusion:

The High Court concluded that the second respondent's misrepresentation and violation of the Advance Licence conditions warranted the confiscation of goods under section 111(o) and the imposition of a penalty under section 112(a). The Court directed the Department to appropriate the retained Bank Guarantee towards the duty and penalty and to initiate recovery proceedings for any balance amount. The Tribunal's order allowing clearance of goods on merit rate was deemed unsustainable and was set aside.