RE-EXPORT OF IMPORTED GOODS - WHETHER PAYMENT OF PENALTY IS A PRE-REQUISITE CONDITION?

[Mr. M. GOVINDARAJAN]

Section 125 of the Customs Act, 1962 (‘Act’ for short) provides that in case of confiscation of a prohibited goods, which are exported or imported, may give an option to the exporter/importer to pay in lieu of confiscation such fine as he thinks fit.  Such fine shall not exceed the market value of the goods confiscated.  The owner of such goods shall pay any duty and charges payable in respect of such goods.

It is clear that redemption fine can be imposed in lieu of the confiscation of the goods if the same is imported in contravention of the any provisions of the Act. However, the above provision does not make it conditional on release of the goods on payment of penalty.

The above said view has been confirmed by the Gujarat High Court in SHREE MAA JAGDAMBA TRADERS VERSUS THE ADDITIONAL COMMISSIONER OF CUSTOMS - 2023 (10) TMI 1179 - GUJARAT HIGH COURT .

The facts of the case run as follows.  The petitioner is engaged in the business of importing and selling Shikakai classified under Entry No. 12119099 of Customs Tariff Act, 1975 (‘CTA’ for short). The same is exempted from payment of the whole of Customs duty as specified in the First Schedule of CTA.  It is also exempted from whole of Agriculture Infrastructure and Development Cess, leviable under section 124 of the Finance Act, 2021  vide Sr. No. 1 of Notification No 96/2008-Customs, dated 13.08.2008. Areca nut is classified under Entry No. 080280-90 of CTA.  The same is chargeable to a concessional rate of Customs duty at the rate of 60% against a tariff rate of 7333 per metric ton, as provided under Sr. No 14(a) of Notification No. 96/2008-Cus, as amended. Further, vide Notification No. 20/2015-20 dated 25.07.2018 issued by the Directorate General of Foreign Trade, New Delhi, the policy condition for import of Areca nut classified under CTH 080280 is ‘prohibited’, if the CIF value is less than Rs. 251 per Kg and, ‘free’ if the CIF value is Rs. 251 per kg of Areca Nuts or more. In order to avail duty exemption and concessional rate of duty as stated above, the import has to be made from one of the countries as specified in the notification. The Union of Myanmar is one of the specified countries and the appellant imported both Shikakai and Areca nut from the Union of Myanmar.

The petitioner issued a purchased order to a Myanmar Company for purchase of 7740 kgs of areca nut for a price of US$ 3300 per metric ton (FOB) and 20220 kgs of Shihakai with all its terms and conditions as accepted by the Seller.  Therefore the petitioner and the seller entered into an agreement in terms of price agreed to by the purchaser  in his purchase order dated 10.08.2022 and commercial invoice dated 07.09.2022.

A partial payment of US$11000 was paid to the seller through regular banking channels. On the same date, the petitioner received a Packing List of Shikakai and Areca nut which clearly showed that the quantity packed was in terms of the Purchase Order dated 10.08.2022, Sales Contract dated 19.08.2022 and Commercial Invoice dated 07.09.2022. The Cargo was loaded on the vessel at Yangon Port, Myanmar and the Seller sent a Bill of Lading dated 27.09.2022 along with Certificate of Origin dated 16.11.2022 to the Petitioner.  The Bill of Lading dated 27.09.2022 clearly shows that the petitioner was informed that the quantity packed at the loading port was in terms of the Purchase Order dated 10.08.2022, Sales Contract dated 19.08.2022 and Commercial Invoice as well as Packing List dated 07.09.2022.

The Vessel arrived at Mundra Port on 16.11.2022.  The petitioner filed the Bill of Entry for home consumption.  On 17.11.2022 the cargo was discharged.  On the same date the petitioner received an email from the seller informing that they inadvertently loaded in  a wrong quantity.  The seller in his mail informed the petitioner that he would take the responsibility in re-shipping the wrong quantities.  The petitioner gave a reply to the seller informing him that he would return the cargo of the seller after observing all legal formalities and it would take some time.  He would make a part payment to the seller.

On receipt of intelligence that the petitioner, in order to evade payment of duty, misdeclared the quantity of imported goods.  The cargo was intercepted and the Department undertook an examination of the container.  The Department prepared the report on 26.11.2022.  The report indicated that 9845 kgs of Areca nuts were in excess and 9920 Kgs of Shikakai were in short supply in terms of quantity declared in the bill of entry.

On 27.03.2023 the petitioner sent a letter to the Department pointing out that it had filed the subject Bill of Entry based on the documents of the Seller.  The said Bill of Entry was filed before getting the knowledge of incorrect quantity of cargo as declared by the seller by admitting his error.  Therefore the petitioner requested the department to allow him to re-export the goods to the seller.  He prayed the Department that no show cause notice may be issued in this regard or a personal hearing may be given to him to explain the facts of the case.  However the Adjudicating Authority passed an order holding the petitioner guilty of mis-declaration.  The Adjudicating Authority-

• Ordered for confiscation of imported goods to the value of Rs.11358488/-;
• Gave an option to the petitioner to redeem the confiscated goods on payment of redemption fine of Rs. 5 lakhs;
•  Imposed a penalty of Rs.10 lakhs on the importer under Section 112(a)(i) of the Act;
• Imposed a penalty of Rs.20 lakhs on the importer under Section 114AA of the Act;
• Permitted to re-export of the goods on payment of redemption fine, penalties and other charges as applicable.

The petitioner, being aggrieved against the order of Adjudicating Authority, filed an appeal before the First Appellate Authority. The petitioner paid 7.5% of the penalty as pre-deposit. Since the permission for re-export was not granted the petitioner filed the present writ petition before the High Court.  The petitioner made the following prayers before the High Court-

• To set aside the impugned order;
• To permit the petitioner to re-export the goods without any condition;
• To direct the Department to allow the petitioner to re-export the goods pending disposal of the writ petition.

The petitioner submitted the following before the High Court-

• No redemption fee is leviable under Section 125 of the Act for the purpose of re-export.
• The variation in the quantity packed and faithfully declared in the Bill of Entry filed on the day of arrival of the vessel i.e. before discharge could never have been termed as mis-declaration by the petitioner nor could the same be treated as a deliberate or willful attempt to evade Customs duty.
• Therefore, no penalty under section 112(a)(i) and / or section 114AA of the Act be imposed.
• The permission for re-export could not be made dependent on fulfillment of payment of the redemption fine or penalty.
• Since the Cargo an agro product and is perishable in nature, the petitioner with a view to expedite the re-export of the excess quantity of Areca nut, deposited the amount of redemption fine. 

The High Court observed that the petitioner paid a sum equivalent to 7.5% of the penalty imposed which is in the nature of pre-deposit.  Therefore it would operate as stay order in original in terms of the Circular dated 16.09.2014.  Since the goods are agricultural goods and perishable in nature the petitioner requested permission for re-export.  The same was rejected since the appeal has not been disposed.  The petitioner offered a bond for such purpose subject to the outcome of the appeal.  The Department rejected this request on the contention for payment of fulfill the conditions contained in the original order.

The High Court has to decide as to whether penalty is payable as a condition to re-export.  The view of the High Court was the penalty imposed by the Authorities for violations of the provisions of the Act has nothing to do with the redemption of goods which are to be permitted to re-export on payment of fine though the same is the subject matter of the appeal. The Department ought to have permitted the petitioner to re-export the goods without insisting the payment of penalty.  The High Court did not express views whether redemption fine can be levied while permitting re-export of the goods since appeal is pending  before the Appellate Authority.