SEIZURE OF OFFENDING GOODS, PROVISIONAL RELEASE OF THE SEIZED GOODS AND ISSUANCE OF SHOW CAUSE NOTICE

[HansRaj Garg]

Section 110 of the Customs Act, 1962 (hereinafter referred to as the Act) forms part of Chapter XIII, which essentially deals with searches, seizure and arrest.  In terms of section 110 of the Customs Act, 1962, if the proper officer has reason to believe that any goods are liable to confiscation, he may seize such goods.

It is essential to note here that the proper officer has to have ‘’reason to believe’’ for the same.  Reason to believe is not the same as ‘’reason to suspect’’. ‘’Reason to believe’’ means having knowledge of facts, not necessarily direct knowledge, that would make any reasonable person, knowing the same facts, to reasonably conclude the same thing. It is based on facts rather than an interpretation of facts. The ‘reason to believe’ needs to be recorded when the provisions of the Act specifically mention to record the same in writing and should be done in good faith.  The recorded reason to believe can be subject to the scrutiny by the Courts. It is open to the Court to examine whether the reason for the formation of the belief had a nexus or a connection with or has a bearing on the formation of the belief. The Courts can also examine as to whether the reasons for the formation of the belief are irrelevant, extraneous or mala fide for the purpose of the section 110 of the Customs Act, 1962.  The phrase ‘’reason to believe’’ finds mention in section 100, 101,103,105, 106 & 109 of the Customs Act, 1962.

 However, reason to suspect would be on a lower footing and would be primarily based on a likelihood of a person (say importer or exporter, etc) in attempting to do an act, which is an offence under the provisions of the Act.  In short, the reason to suspect would be uncorroborated information received at the initial stage and the said information can be taken as a clue and needs to be worked upon to bring it up to the stage of ‘’reason to believe’’.

Moving further, we find that Section 110A of the Act deals with provisional release of goods, documents and things seized pending adjudication. Section 110 (2) of the Act mandates that where any goods are seized under sub section (1) and no notice in respect thereof is given under clause (a) of section 124 within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized. The Finance Act, 2018 amended the proviso to Section 110A and now there are two provisos. Nevertheless in terms of the first proviso, the Principal Commissioner of Customs or the Commissioner of Customs, for reasons to be recorded in writing, may extend the period of six months by a further period of six months.  This proviso further mandates the Principal Commissioner of Customs or the Commissioner of Customs to inform of the extension being given to the person, from whom such goods were seized well before the expiry of the initial period of six months.  The second proviso further provides that where any order for provisional release of the seized goods has been passed under section 110A, the specified period of six months shall not apply.

Confiscation of goods and conveyances & imposition of penalties is covered under Chapter XIV of the Act and this Chapter contains Sections 111 to 127 of the Act. The seizure of the goods may result in confiscation of the goods by the adjudicating authority under section 111 or section 113 of the Act and upon confiscation, in terms of Section 126 of the Act, the property vests with the Central Government and for which, in terms of section 122 of the Act, such confiscation or penalty can be decided by a Principal Commissioner of Customs or Commissioner of Customs or a Deputy Commissioner of Customs, based on the monetary limits set out by the CBIC.  Section 122A of the Act mandates that the adjudicating authority shall hear the party/importer/exporter, etc, by posting the matter before him as a part of the inbuilt principles of natural justice and with the power to grant adjournments thrice, on sufficient cause being shown.

Section 124 of the Act provides for issue of show-cause notice before confiscation of goods, etc.  This Section provides a mechanism to the effect that no order confiscating any goods or imposing any penalty on any person shall be made under Chapter XIV unless the owner of the goods or such person –

(a) is given a notice in writing with the prior approval of the officer of Customs not below the rank of an Assistant Commissioner of Customs, informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty;

(b) is given an opportunity of making a representation in writing within such reasonable time as may be specified in the notice against the grounds of confiscation or imposition of penalty mentioned therein; and

(c) is given a reasonable opportunity of being heard in the matter :

Provided that the notice referred to in clause (a) and the representation referred to in clause (b) may, at the request of the person concerned be oral.

Provided further that notwithstanding issue of the notice under this Section, the proper officer may issue a supplementary notice under such circumstances and in such manner as may be prescribed.

A careful reading of the second proviso to Section 110(2) removes the shackles of six months for issuance of show cause notice, subsequent to the seizure, as contemplated under section 124(a) of the Act when the seized goods are provisionally released irrespective of the fact that person may or may not actually opt for provisional release of the seized goods.  In a situation of this kind, essentially, it flows that the department can legally and technically wait for nearly five years, from the relevant date, to issue a ‘’clubbed show cause notice’’ for the seizure as well as for the extended period.

The Division Bench of the Hon’ble Bombay High Court, recently in the case of M/S. MBILITY SERVICES, VERSUS PRINCIPAL COMMISSIONER OF CUSTOMS (PREVENTIVE) , RAGHAVENDRA SINGH, JOINT COMMISSIONER OF CUSTOMS, (PREVENTIVE) , R & I, MUMBAI, ADDITIONAL COMMISSIONER OF CUSTOMS, HEMANGI SANDEEP KHARADE, SUPERINTENDENT OF CUSTOMS (PREVENTIVE) , RAJENDRA SINGH, INVESTIGATING OFFICER, R&I, MUMBAI, CENTRAL BOARD OF INDIRECT TAXES, [2021 (5) TMI 740 - BOMBAY HIGH COURT], had an occasion to dwell on this issue and it was observed in Para 35 of the said judgment as under:

         ‘’35. While dealing with section 110, we have noticed that if within six months (extendable by another six months), no notice under section 124(a) is given post seizure; the goods shall be returned to the person from whose possession those were seized. However, the aforesaid rigor of law would not be applicable when the seized goods are provisionally released under section 110A. Does that mean that the show-cause notice contemplated under section 124 can be indefinitely deferred or delayed post seizure where the seized goods are provisionally released. In our view, such a construction would not be a reasonable one because a seizure of goods in contemplation of confiscation is a drastic measure and is required to be adjudicated promptly.’’

                                                                 Emphasis supplied.

A careful analysis of the judgment reveals that the Hon’ble Bombay High Court was aware of the amendments to Section 110 by the Finance Act, 2018, by which the issuance of the seizure show cause notice came to be dispensed with once the provisional release order came to be issued.  There may be situation where the extended period would not be applicable at all. To illustrate, an importer may have imported an item for the first time, with no past record of imports of the subject goods. This importer does not take provisional release of the goods on account of say financial difficulties or onerous conditions imposed for the provisional release.  There can be any number of situations.  Does this mean that the department will hold on to the goods and issue a SCN proposing confiscation of the seized goods up to five years. Such a reasoning, if adopted, would be fatal to the proceedings.  It must be remembered that the interpretation of any provision in a statute should be done harmoniously and should advance the cause of justice. By dispensing with the need of issuance of notice within the period of six months or as extended by the competent authority and waiting till the fifth year to issue the SCN not only defeats the purpose and object of Section 124(a) of the Act but also does not set a good precedent for the department.

Keeping these in view, the author is of the considered view that the show cause notice in respect of the seized goods should be issued within a reasonable period say six months or the period as extended by the competent authority, notwithstanding the amendment brought about in the Act. The department should adopt progressive measures & best practices and desist from taking retrograde steps, which not only hurt the trade but also do not further the cause of ‘ease of doing business’. 

           

HANS RAJ GARG,

ADDITIONAL DIRECTOR (RETD),

DIRECTORATE OF REVENUE INTELLIGENCE,

MUMBAI ZONAL UNIT

Presently Consultant: Viraj Profiles Ltd Mumbai

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Discussions to this article

[Jayaprakash Gopinathan]

Well written. Congrats. CBE&C Instruction on the subject is provided below for ready referance.

Jayaprakash Gopinathan-Advocate

Seizure of goods under Customs Section 110 - In addition to panchnama, seizure memo/order also to be prepared - Timely SCN to be issued even in respect of provisionally released seized goods - Guidelines

Instruction No. 1/2017-Cus. (F.No. 591/04/2016-Cus. (AS)), dated 8-2-2017