LIABILITY CANNOT BE FASTENED ON PERSON WHO HAD NOTHING TO DO WITH THE IMPUGNED TRANSACTION

[Mr. M. GOVINDARAJAN]

In ‘Leo Enterprises V. Commissioner of Customs, Tuticorin’ –2012 (9) TMI 31 - MADRAS HIGH COURT the petitioner is in the business of Import Trade and Local Trade of plywood sheets, fiber boards etc., He has been allotted an IEC for conducting import business by the Joint Director General of Foreign Trade, Zonal Office, Chennai, Ministry of Industry and Commerce, Government of India.   In the course of his business the petitioner entered into High Sea Sales contract with M/s Geetha Timbers Ply Woods Private Limited, Theni for purchase of sheets of medium density fiber board. M/s Geetha Timbers Ply Woods Private Limited had entered into contract with M/s Merbok KDF Lanka Private Limited for supply of the said goods.

M/s Geetha Timbers Ply Woods Private Limited raised an invoice on the petitioner.   The goods received from Sri Lanka at Tuticorin Sea port under bill of lading and the petitioner filed a bill of entry under Section 46 of the Customs Act, 1962 for assessment, payment of duty and clearance of goods for home consumption. The Assistant Commissioner of Customs refused to pass an order of assessment and clearance of the goods on the ground that the goods imported could be cleared only on getting clearance from the Arrears Section of the Commissionerate for the dues of M/s Geetha Timbers, a partnership firm.

Against this the petitioner filed the present writ petition before the High Court. The petitioner contended the following:

• The petitioner is an independent entity, which has nothing to do with M/s Geetha Timbers;
• The goods cannot be detained for recovery of M/s Geetha Timbers specially when the High Sea Sales Contract is with M/s Geetha Timber Ply Woods Private Limited;
• The petitioner entered into an agreement with M/s Geetha Timber Ply Woods Private Limited and there is no pending demand against this company;
• The action of the Assessing Officer is arbitrary as no dues are admittedly due from the petitioner or its seller.

The Revenue opposed the contention of the petitioner.   It is contended that under clause 14 of the High Sea Sales Contract, the petitioner had undertaken to pay the entire expenses with customs duties, clearing charges, demurrage etc.,   Therefore the goods cannot be released to the petitioner till the dues of M/s Geetha Timbers are realized.

The High Court observed that there is no dispute that the petitioner has entered into a High Sea Sales Contract with M/s Geetha Timbers Ply Woods Private Limited against whom there is no demand.   The demand against M/s Geetha Timbers has also been stayed. As such there is no demand which could give jurisdiction to the Revenue to detain the goods imported by the petitioner under the High Sea Sales Contract. The High Court held that the impugned order in refusing to release the goods is contemptuous, as demand is contrary to the stay granted by the Tribunal and therefore not sustainable.

The High Court further observed that the Revenue relied clause 14 of the High Sea Sales Contract. The said clause reads as – “In view of the disposal of the goods by transfer of documents of title when the goods are High Seas in the course of import the buyer shall arrange clearing of the goods from the customs at his sole risk and responsibilities. The entire expenses namely customs duties, clearing charges, demurrage and octroi etc., will be borne by the buyer and paid directly to the customs and/or clearing and forwarding agents. The High Court held that clause cannot be interpreted that the petitioner has agreed to pay even the demand against the vendor, regarding other transactions.

The High Court further held that the action of the Department is arbitrary under Section 142(1)(b) of the Customs Act and the liability of revenue arrears of other persons cannot be fastened on the petitioner. The order of not releasing the goods can safely be said to be totally arbitrary, being in violation of statutory provisions and thus, is hit by Article 14 of the Constitution of India.

The Revenue admitted that the contention of the petitioner is right and they would release the imported goods by the petitioner subject to the petitioner paying the assessed duties and other charges in accordance with law. The High Court directed the petitioner to pay the duty and after that the Department will release the goods.