2022 (12) TMI 989 - HC - Customs

Release of goods - undervaluation - Demand of bank guarantee for differential duty on of bills of entry for imports of the Petitioner of concentrates of alcoholic beverages from 1 April 2022 onwards - direction to furnish the bank guarantees for differential duty on imports of the Petitioner's products by loading a specified percentage of the invoice value - HELD THAT - It is not disputed and cannot be disputed that under Section 18(1) of the Act, the authorities have the power to insist upon security in the form of a bank guarantee while clearing the goods on provisional assessment. This power under Customs Act is the main source of power. Section 18(1) lays down the power to seek security during the provisional assessment. It is also not disputed that if the Circulars structure the power under Section 18(1), it has to be exercised within the parameters of the Circulars issued under the Act. There is a difference between the position pending the investigation by SVB and the position after the investigative findings are reached and supplied to the assessing officer. Once the investigative findings are received, the assessing officer will have to proceed to issue a show-cause notice and take necessary steps as per Section 18(1) of the Act. Therefore, we find no merit in the contention of the Petitioner that the position envisaged in Circular No.5/2016 regarding furnishing of an only bond, without any EDD and security, will continue even after the investigative findings are received and show-cause notice is issued. The position after submission of the investigation report by SVB is not covered by Circular No.5/2016, and the contingency is covered under Section 18(1) of the Act and also by sub-clause-6(b)(1) of Clause-3 of Circular No.38/2016. Sub-clause- 6(b)(1) of Clause-3 of Circular No.38/2016 speaks of a 100% of bank guarantee. No position is shown to us that after the SVB submits an investigation report, estimates the differential duty, and records a finding that there has been undervaluation, the power under Section 18(1) of the Act to demand security for differential duty is taken away. Having received the findings from the SVB that the Petitioner is undervaluing its import from the related party and differential duty has been estimated at 67.49%, as per the provision of Section 18(1) of the Act read with Circular No.38/2016, bank guarantees to the tune of 100% were correctly insisted upon. There is no error, illegality or lack of power in the Respondents' action in insisting upon the bank guarantee with the loading of 67.49% of the invoice value relying on the investigative findings of SVB. No mandamus can be issued to the Respondents to provisionally assess all future imports of the Petitioner till the adjudication is complete upon only furnishing a bond without insisting on furnishing of the bank guarantee - Since we find no error nor lack of jurisdiction for insisting on bank guarantees towards the differential duty, no direction can be issued to the Respondents to return the bank guarantee, which the Petitioner has submitted. Writ petition dismissed.

Summary

Issues Involved:
1. Legality of demanding bank guarantees for differential duty on imports.
2. Applicability and interpretation of Circular No.5/2016 and Circular No.38/2016.
3. Authority under Section 18(1) of the Customs Act, 1962 to demand security.

Issue-wise Detailed Analysis:

1. Legality of Demanding Bank Guarantees for Differential Duty on Imports:
The core issue is whether the Respondents can demand bank guarantees for differential duty on the Petitioner's imports by loading a specified percentage of the invoice value. It is undisputed that the power to direct furnishing security exists under Section 18 of the Customs Act. The Petitioner argued that Circulars No.5/2016 and No.38/2016 prohibit such demands and that the imports should be cleared on a personal bond. The Respondents countered that Circular No.5/2016 does not apply post-investigation, and Circular No.38/2016 supports their case.

2. Applicability and Interpretation of Circular No.5/2016 and Circular No.38/2016:
Circular No.5/2016 aims to streamline the procedure for investigations by the Special Valuation Branch (SVB). It specifies that no security in the form of Extra Duty Deposit (EDD) shall be obtained from importers during SVB investigations, provided the importers submit required documents timely. However, if documents are not submitted within 60 days, a security deposit of 5% of the declared assessable value may be imposed for a period not exceeding three months. The Circular also states that the SVB will submit its investigative findings to the referring customs formation for finalizing provisional assessments. The Petitioner argued that this Circular structures the power under Section 18(1) and limits the demand for security to a personal bond and a 5% security deposit for three months.

Circular No.38/2016 provides general guidelines for provisional assessment under Section 18 of the Customs Act. It mentions that the deposit of 20% of the differential duty has been dispensed with to reduce transaction costs. However, it also states that security in the form of a bank guarantee or cash deposit may be required. Specifically, for cases referred to the SVB, Circular No.5/2016 applies. For other cases, including those requiring chemical tests or further inquiries, a bank guarantee of 100% of the differential duty may be demanded.

3. Authority under Section 18(1) of the Customs Act, 1962 to Demand Security:
Section 18(1) of the Customs Act allows the proper officer to direct that the duty leviable on goods be assessed provisionally if the importer furnishes security for the payment of any deficiency. The Court found that Circular No.5/2016 structures this power only during the investigation by the SVB. Once the SVB submits its investigative findings, the provisional assessment continues under Section 18(1), and Circular No.38/2016 applies. This Circular allows for a 100% bank guarantee for differential duty in cases where the proper officer deems it necessary to order provisional assessment for causing inquiries.

Conclusion:
The Court concluded that the Respondents have the authority under Section 18(1) of the Customs Act to demand bank guarantees for differential duty based on the SVB's investigative findings. Circular No.5/2016 applies only during the investigation phase, and post-investigation, Circular No.38/2016 and Section 18(1) govern the provisional assessment. The demand for a 100% bank guarantee is justified to secure the interest of the revenue. The Petitioner's request for provisional assessment based only on a personal bond without bank guarantees was denied, and the writ petition was dismissed.