2018 (2) TMI 1271 - HC - Customs

Recovery proceedings - Refund u/s 27(1) of the Customs Act, 1962 - appropriation towards the petitioner s liability arising out of an order dated 25.04.2016 - duty drawback - whether the adjustment of a refund granted amounts to a coercive step? - Held that - It does - Merely because an amount is lying with the respondents the adjustment thereof by the respondents, makes no difference. The unilateral action of adjustment constitutes a coercive measure as much as any step or action to recover an amount lying with the petitioner or with any other party on behalf of the petitioner. Whether the circular places an absolute bar of prohibition against the respondents recovering an amount in excess of the amount deposited as per the said circular? - Held that - It does not - The word shall in clause 4.2 must be read as may for more than one reason. Firstly, if it is read as shall and not as may , the circular would be contrary to section 142 of the Customs Act, 1962. Had we not construed the word shall as may , we would have readily struck down paragraph 4.2 of the circular as being contrary to section 142 and, therefore, illegal. In our view, however, the word shall must be read as may . The validity of the circular is accordingly upheld subject, however, to the word shall therein being read as may . In the present case, one of the reasons for passing the order is that an appeal had not been filed in the name of one of the proprietary firms. That is irrelevant. These are not firms established under the Partnership Act, 1932, or incorporated under the Companies Act, 1956. They are merely the names in which the petitioner carries on business as the sole proprietor thereof. The name in which the petitioner carries on business is not relevant. Proceedings cannot be filed in such name or names. The petitioner having filed the appeal, therefore, serves the purpose of challenging the demand. The impugned order is quashed and set aside - respondents shall be entitled to encash the bank guarantee. The respondents shall be entitled to retain the amount deposited and the amount recovered under the bank guarantee but subject to the fresh orders and the result of the challenge thereto, if any. Petition disposed off.

Issues Involved:
1. Appropriation of refund against pending liabilities.
2. Legality of coercive measures for recovery during the pendency of appeals.
3. Interpretation of the circular issued by the Central Board of Excise and Customs.
4. Application of Section 142 of the Customs Act, 1962.
5. Relevance of the name under which the petitioner filed the appeal.

Issue-wise Detailed Analysis:

1. Appropriation of Refund Against Pending Liabilities:
The petitioner sought a writ of certiorari to quash an order dated 21.11.2016, which sanctioned a refund of ?15 lakhs but appropriated it towards the petitioner’s liability arising from an order dated 25.04.2016. The petitioner had deposited ?15 lakhs pursuant to a court order and sought its refund after succeeding in an appeal. However, the Deputy Commissioner of Customs appropriated this refund against another demand of ?13 lakhs towards duty drawback and ?3.13 crores towards penalty, without issuing any notice or granting an opportunity of being heard to the petitioner.

2. Legality of Coercive Measures for Recovery During Pendency of Appeals:
The petitioner argued that the respondents were not entitled to adjust the refund or invoke the bank guarantee during the pendency of the appeal, citing a notification dated 16.09.2014 issued by the Central Board of Excise and Customs. This circular stipulated that no coercive measures for recovery should be taken during the pendency of an appeal if the stipulated pre-deposit of 7.5% or 10% was made. The court agreed that the adjustment of the refund constituted a coercive measure.

3. Interpretation of the Circular Issued by the Central Board of Excise and Customs:
The court examined whether the circular placed an absolute bar on recovering amounts in excess of the pre-deposit during the pendency of an appeal. It concluded that the word "shall" in clause 4.2 of the circular should be read as "may" to avoid conflict with Section 142 of the Customs Act. The court reasoned that if the circular were construed as an absolute bar, it would be contrary to the statutory provisions and could lead to unjust results for the revenue.

4. Application of Section 142 of the Customs Act, 1962:
Section 142 allows the proper officer to deduct amounts payable under the Act from any money owing to the person, which is under the control of the officer. The refund in question was considered an amount under the control of the customs officer. Therefore, the proper officer was entitled to deduct the refund towards the claims of ?13 lakhs and ?3.13 crores. The court upheld the statutory right of the officer to make such deductions, subject to the officer considering all relevant facts.

5. Relevance of the Name Under Which the Petitioner Filed the Appeal:
One of the reasons for the impugned order was that an appeal had not been filed in the name of one of the proprietary firms. The court found this irrelevant, as the firms were merely names under which the petitioner carried on business as a sole proprietor. The petitioner filing the appeal served the purpose of challenging the demand, regardless of the business name used.

Conclusion:
The court quashed the impugned order and directed the officer to pass a fresh order considering all facts and circumstances. The respondents were entitled to encash the bank guarantee and retain the amount deposited, subject to the fresh order and the result of any subsequent challenge. The petition was accordingly disposed of.

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