2024 (7) TMI 75 - HC - Customs

Interpretation of statute - section 110 A of the Customs Act, 1962 - use of word, may and not shall - applicability of clause (i) of Para 2 of Circular No.35/2017-Customs dated 16.08.2017 issued from F.No.394/13/2016-Cus (AS) - provisional release for prohibited goods - section 2(33) of Customs Act, 1962 - HELD THAT - On perusal of the order dated 25.10.2022 passed by the appellant, which was impugned before the Tribunal, it was stated that the evidence gathered by the investigating agency indicates that the gold had been imported by certain persons without payment of customs duty subject to the condition that the imported gold will be used for manufacture of jewellery to be exported. However, it was diverted to the domestic market where it was purchased by third parties, contrary to the conditions and restrictions imposed by the Government of India. Further, it was observed by the appellant that the scale of fraud perpetrated by certain persons in import of gold for the purpose of manufacturing jewellery for export and diverting it into domestic market calls for confiscation of the gold seized from the premises of the respondent - the appellant refused to exercise the discretion conferred under the provisions of the Customs Act to release the goods provisionally. The Tribunal has got powers to interfere with the order passed by the appellant. At the same time, given the nature of violation committed by the respondent in importing gold for manufacturing jewellery for export but diverting it into domestic market, we are of the view that this is not a fit case where the Tribunal is justified in exercising the discretion conferred upon Section 110-A of the Customs Act to provisionally release the goods. The Tribunal also ignored clause (i) of part 2 of Circular No.35/2017-Customs dated 16.08.2017 wherein it was stated that provisional release of goods shall not be allowed in respect of prohibited goods as has been defined under Section 2 (33) of Customs Act, 1962. In this case, it is clear that the goods which are sought to be provisionally released, is a prohibited goods and therefore, the Tribunal ought not to have passed the order, which is impugned in this appeal. Liberty is given to the respondent to deposit the value of the seized gold as on date / as claimed by the appellant and in the event of the respondent making such payment, the appellant shall provisionally release the seized goods to them, upon imposing any other condition(s) as may be deemed fit and necessary, if the seized gold has not been sold out or auctioned. The respondent also undertakes to comply with his export obligation of exporting gold jewellery and it is open to the appellant to take appropriate action in the event of breach of any condition of Notification No.57/2000-Cus read with Circular No.27/2016 including export obligation. Appeal allowed.

Summary

Issues Involved:
1. Whether CESTAT erred in setting aside the Order in F.No.GEN/ADJ/COMM/295/2022-ADJN dated 25.10.2022 by applying section 110A of the Customs Act, 1962.
2. Whether CESTAT properly applied clause (i) of Para 2 of Circular No.35/2017-Customs dated 16.08.2017 regarding the provisional release of prohibited goods.

Detailed Analysis:

Issue 1: Application of Section 110A of the Customs Act, 1962
The Revenue contended that CESTAT erred in setting aside the order dated 25.10.2022 by misapplying Section 110A of the Customs Act, 1962. The section uses the term "may" and not "shall," indicating that the release of seized goods is a discretionary power vested in the adjudicating authority. The Revenue argued that the seized gold was prohibited and involved in fraudulent activities, hence not eligible for provisional release. They relied on precedents such as Sheikh Mohd. Omer vs. Collector of Customs and Om Prakash Bhatia vs. Commissioner of Customs to emphasize the discretionary nature of provisional release and the implications of fraudulent activities on national economy and public interest.

The Tribunal, however, directed the provisional release of the seized goods on the condition that the respondent furnish a bond for the full value of the seized goods and a Bank Guarantee for 30% of the value, allowing inspection by the Revenue. The Tribunal's decision was based on its coequal powers with the adjudicating authority and similar precedents like the Delhi High Court's decision in Additional Director General (Adjudication) vs. Its My Name Pvt Ltd.

Issue 2: Application of Circular No.35/2017-Customs
The Revenue argued that CESTAT failed to apply clause (i) of Para 2 of Circular No.35/2017-Customs, which states that provisional release shall not be allowed for prohibited goods as defined under Section 2(33) of the Customs Act, 1962. The seized gold, being prohibited and involved in fraudulent activities, should not have been released provisionally. The Revenue emphasized that the goods were part of a wider conspiracy to defraud the exchequer and did not fulfill statutory obligations.

The Tribunal's decision to provisionally release the goods was contested by the Revenue, which argued that the Tribunal ignored the specific guidelines and statutory definitions of prohibited goods. The Tribunal's reliance on the Delhi High Court's decision was deemed inappropriate as it did not consider the specific illegalities and irregularities in the present case.

Judgment:
The High Court concluded that the Tribunal erred in exercising discretion under Section 110A of the Customs Act for provisional release of the seized goods. The Tribunal failed to consider the nature of violations and the specific guidelines under Circular No.35/2017-Customs. The High Court emphasized that the goods were prohibited and involved in fraudulent activities, making them ineligible for provisional release. The Tribunal's decision was set aside, and the appeal was allowed in favor of the Revenue.

However, the respondent was given the liberty to deposit the current value of the seized gold for provisional release, subject to conditions imposed by the appellant, ensuring compliance with export obligations and other statutory requirements.

Conclusion:
The appeal was allowed, setting aside the Tribunal's order for provisional release of the seized goods. The respondent was permitted to deposit the current value of the seized gold for provisional release, subject to conditions ensuring compliance with statutory and export obligations.