2016 (4) TMI 1032 - HC - Customs

Validity of circulars under Section 151A of the Customs Act - Whether ultra vires or not - Import of gold jewellery from Indonesia - Held that - the impugned Circulars dated 6th October 2015 and 20th January 2016 do in fact whittle down the scope of the exemption available for import of gold jewellery from Indonesia, across the board, only because, according to the Department, the COOs issued by the Issuing Authority in Indonesia could not be verified. The Circular dated 6th October 2015 requires an Officer of the Customs who has issued a SCN not to pass orders of provisional assessments. It requires the original COOs along with appealable orders to be sent to the CBEC. Clearly the Circular does not, as was sought to be explained by Mr Dubey, merely elaborate the procedures. It interferes with the discretion to be exercised by the customs officer who is performing a quasi-judicial function. Para 7.1 of the said Circular requires the importers to present facts in support of the COOs, which is not a requirement in the original exemption notification. There is considerable merit in the contention that this goes beyond the mandate of the Customs Tariff Origin Rules and constitutes an unreasonable and onerous condition as far as the importers are concerned. As far as the circular dated 20th January 2016 is concerned, Regulation 2 (2) of the CPDA Regulations provides for a maximum payment of only 20% of duty differential in the case of a provisional assessment. The insistence on a bank guarantee for the entire differential duty appears to be contrary to Regulation 2 (2). The Court is unable to accept the plea of Mr Dubey that the above Circular emerges from the Regulation 4 and is intended to adequately secure the Revenue and ensure uniformity of provisional assessments across all ports. The said Circular does not leave the issue of what conditions should be imposed for provisional assessment to the concerned customs officer. It requires the officer to demand 100% bank guarantee even in respect of those B/Es which have been provisionally assessed under Section 18 of the Act. It certainly is contrary to proviso (a) to Section 151A inasmuch it dictates to the customs officer in what manner he should complete a provisional assessment. The consequent impugned letter dated 22nd January 2016 came to be issued to M/s. J.B. Overseas only on the basis of the said Circular. Therefore, the Circular dated 6th October 2015 issued by the CBEC and the instructions issued on that basis on 20th January 2016 by the CBEC addressed to the customs officers are in violation of Section151A of the Act and are hereby quashed. A perusal of the SCN issued to M/s. J.B. Overseas on 26th November 2015 reveals that it is a virtual reproduction of the impugned Circular dated 6th October 2015. SCN suffers from the fatal flaw and has been issued overlooking the COOs produced by the said importer verified by Issuing Authority. Since the SCN has been issued on the basis of an invalid Circular, relegating the Petitioners to the alternative remedy of statutory adjudication and consequent appeal would be a pointless exercise, the said SCN and the proceedings consequent thereto are held to be invalid and unsustainable in law. The proceedings consequent thereto the circulars including the communication dated 22nd January 2016 issued to M/s. J.B. Overseas requiring it to furnish a bank guarantee of 100% of the duty differential while making provisional assessment are hereby set aside. It is made clear that any SCN or any application for provisional release of goods by members of the Petitioner Association and similarly placed importers would be decided by the customs officers in accordance with law uninfluenced by an of the abovementioned circulars, instructions or directions.

Issues Involved:

1. Validity of CBEC Circular dated 6th October 2015.
2. Validity of CBEC Circular dated 20th January 2016.
3. Legality of the requirement for a 100% bank guarantee for provisional assessment.
4. Compliance with the ASEAN-India Free Trade Agreement (AIFTA) and Customs Tariff Origin Rules.
5. Authority under Section 151A of the Customs Act.
6. Validity of Show Cause Notice (SCN) issued to M/s. J.B. Overseas.

Issue-wise Analysis:

1. Validity of CBEC Circular dated 6th October 2015:
The Circular dated 6th October 2015 issued by CBEC directed the Assessing Authority to disregard certificates issued by Indonesian authorities, stating that gold jewellery imported from Indonesia did not meet origin criteria and should be denied preferential custom duty benefits. The Court found that the Circular was issued in excess of powers under Section 151A of the Customs Act. The CBEC misinterpreted the Customs Tariff Origin Rules and ignored clarifications from Indonesian authorities, thus violating Section 151A(a) which prohibits instructions that require a customs officer to make a particular assessment or dispose of a case in a specific manner.

2. Validity of CBEC Circular dated 20th January 2016:
This Circular directed Assessing Officers to follow the earlier Circular dated 6th October 2015 and demand a 100% bank guarantee for the duty differential during provisional assessments. The Court held that this Circular was ultra vires Section 151A of the Customs Act as it interfered with the discretion of the customs officers, which is prohibited under the law.

3. Legality of the requirement for a 100% bank guarantee for provisional assessment:
The Circular dated 20th January 2016 required importers to furnish a 100% bank guarantee for the duty differential, which was contrary to Regulation 2(2) of the Customs (Provisional Duty Assessment) Regulations, 2011 (CPDA Regulations). The Court noted that Regulation 2(2) provides for a maximum payment of only 20% of the duty differential. Therefore, the requirement for a 100% bank guarantee was deemed illegal.

4. Compliance with the ASEAN-India Free Trade Agreement (AIFTA) and Customs Tariff Origin Rules:
The Court observed that the Customs authorities failed to follow the detailed verification procedure outlined in the AIFTA and Customs Tariff Origin Rules. The Indonesian authorities had confirmed the origin of the gold jewellery, and the necessary certificates of origin (COOs) were provided. The Court found that the CBEC Circulars disregarded these verifications and clarifications, thus violating the established procedures under the AIFTA.

5. Authority under Section 151A of the Customs Act:
Section 151A of the Customs Act allows the CBEC to issue instructions for uniformity in classification or levy of duty but prohibits instructions that dictate specific assessments or disposals of cases. The Court held that the impugned Circulars exceeded the scope of authority under Section 151A by directing customs officers to deny preferential duty benefits and demand a 100% bank guarantee, thereby interfering with their quasi-judicial discretion.

6. Validity of Show Cause Notice (SCN) issued to M/s. J.B. Overseas:
The SCN issued to M/s. J.B. Overseas on 26th November 2015 was found to be a reproduction of the impugned Circular dated 6th October 2015. The Court held that the SCN was invalid as it was based on an invalid Circular and did not involve an independent application of mind by the customs officials. Consequently, the SCN and subsequent proceedings were deemed unsustainable in law.

Conclusions:
The Court quashed the CBEC Circulars dated 6th October 2015 and 20th January 2016 as ultra vires Section 151A of the Customs Act. The proceedings based on these Circulars, including the communication dated 22nd January 2016 requiring a 100% bank guarantee from M/s. J.B. Overseas, were set aside. The Court directed that any SCN or application for provisional release of goods should be decided in accordance with the law, uninfluenced by the invalid Circulars. The writ petitions were disposed of with no orders as to costs.

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