2002 (3) TMI 70 - HC - Customs

Summary

Issues Involved:
1. Legality of the search and seizure conducted by the Directorate of Revenue Intelligence (D.R.I.).
2. Entitlement to benefits under the Duty Exemption Scheme.
3. Validity of withholding DEPB (Duty Exemption Passbook) licenses.
4. Compliance with procedural norms during investigation.
5. Jurisdiction and authority of customs officials in the context of DEPB licenses.

Detailed Analysis:

1. Legality of the Search and Seizure:
The petitioner-company alleged that the search and seizure conducted by D.R.I. officers were unlawful. They claimed that no notice or memo was served, and no order authorizing the search was provided. The search was conducted without transparency, and employees were mistreated and coerced into giving statements. The court found that the search and seizure were based on mere suspicion rather than "reason to believe," which is a fundamental requirement under Section 105 of the Customs Act. The court emphasized that "fishing out evidence in the garb of search and seizure cannot be construed as reason to believe but reason to suspect." Consequently, the actions of the D.R.I. were deemed illegal and quashed.

2. Entitlement to Benefits under the Duty Exemption Scheme:
The respondents contended that the petitioner-company was not manufacturing calcium stearate and was instead purchasing it from the local market, thus not qualifying for benefits under the Duty Exemption Scheme. The petitioner argued that even a merchant exporter could avail benefits under the DEPB Scheme, which aims to boost exports and earn foreign exchange. The court agreed with the petitioner's interpretation, stating that the DEPB Scheme applies to both manufacturer and merchant exporters. The court noted that "if one has exported a quantity of goods without manufacturing the same but buying from the market cannot be said to be the reason to believe that the goods were smuggled."

3. Validity of Withholding DEPB Licenses:
The court criticized the customs authority's decision to withhold DEPB licenses based on speculative grounds. The court found no justification for the D.R.I.'s actions to withhold clearances of DEPB licenses on the ground of possibilities. It was held that "DEPB licenses cannot be withheld on such ground, and if it is done then the same will have to be declared as an action against own policy of the Government." The court ordered that the DEPB licenses should be processed independently and without delay.

4. Compliance with Procedural Norms during Investigation:
The court highlighted multiple procedural lapses by the D.R.I. during the investigation. The search and seizure were conducted without serving copies of records to the petitioner, violating Section 165(5) of the Code of Criminal Procedure. The court noted that "no copy of the record was served upon the petitioner to take a defense," and the authorities failed to produce the secret information before the court when called upon. The court condemned the simultaneous conduct of search and seizure with the investigation, stating that it indicated a lack of reasonable belief and was more akin to a reason to suspect.

5. Jurisdiction and Authority of Customs Officials in the Context of DEPB Licenses:
The court clarified the roles of different authorities under the DEPB Scheme and the Customs Act. It noted that the DEPB Scheme is governed by the Ministry of Commerce, and the Director General of Foreign Trade (DGFT) is the final adjudicating authority for issues related to licenses. The customs authority's role is limited to verification and cannot extend to withholding licenses based on speculative grounds. The court stated, "A governmental authority cannot go beyond the law. One has to remember that one mistake by them may cause interference with the personal liberty of a citizen in doing business as protected under Articles 19(1)(g) and 21 of the Constitution of India."

Conclusion:
The court quashed the summons and notices issued by the customs authority, set aside the proceedings of enquiry, investigations, and search and seizure, and ordered the return of all documents to the petitioner. The DEPB licenses were to be processed independently without being influenced by the impugned notices. The court emphasized the importance of adhering to legal procedures and protecting the rights of citizens against highhanded actions by authorities.