2025 (3) TMI 859 - HC - Customs

Correctness in attempting to negate the permission under Section 65 of the Customs Act after having permitted not only the establishment of the warehouse but also the import of the equipment - HELD THAT - It is apparent that the applicability of Section 65 of the Act and the prohibition contained under the MOOWR Regulations has been the subject matter of the decision. Hence prima facie the contention of the learned Senior Standing Counsel for the Department does not appeal here. It is appropriate to stay the operation of the impugned proceedings dated 24.06.2024 produced as Annexure-P1 subject to the condition that this interim order shall remain in operation till any orders that may be passed by the Hon ble Apex Court in the pending SLP (C) No. 20274-20281 of 2024 preferred by the Central Board of Indirect Taxes and Customs. There shall be a direction to the State Bank of India Jubilee Hills Branch Hyderabad to deduct a sum equivalent to 15% of the payment received under the PPAs dated 02.02.2022 and 07.07.2022 and retain the said sum in a fixed deposit until further orders from this Court. Conclusion - The petitioner was entitled to interim relief allowing the installation and operation of the equipment for power generation and supply for home consumption. It imposed conditions to secure the Department s interests such as retaining a portion of payments received under power purchase agreements in a fixed deposit. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the respondent-Department was justified in attempting to negate the permission under Section 65 of the Customs Act, 1962, after having permitted the establishment of a bonded warehouse and the import of equipment by the petitioner. This issue revolves around the applicability of Section 65 of the Act in conjunction with the Manufacture and Other Operations in Warehouse Regulations (MOOWR Regulations) and the implications of prior judicial decisions on similar matters.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework primarily involves Section 58 and Section 65 of the Customs Act, 1962, which deal with the licensing of private bonded warehouses and the permissions related to manufacturing and other operations in such warehouses. The MOOWR Regulations are also relevant, as they govern the operations within these warehouses. A significant precedent is the decision by the Delhi High Court in ACME Heergarh Powertech Private Limited v. CBIC, which addressed similar issues regarding the applicability of Section 65 and the MOOWR Regulations.

Court's Interpretation and Reasoning

The Court examined the context of the permissions granted under Section 58 and the subsequent attempt to negate permissions under Section 65. It considered the arguments presented by both parties, particularly focusing on the reasoning provided by the Delhi High Court in a similar case. The Court noted that the Delhi High Court's judgment had not been stayed or suspended by the Supreme Court, thus providing a persuasive precedent.

Key Evidence and Findings

The Court noted the undisputed facts regarding the value of the equipment, the customs duty involved, and the installation of goods in the bonded warehouses. It also acknowledged the bonds provided by the petitioner to secure the Department's interests. The Court found that the petitioner's case was similar to the one decided by the Delhi High Court, where the Department's instructions were quashed.

Application of Law to Facts

The Court applied the legal principles from the Delhi High Court's decision to the facts of the current case. It determined that the Department's attempt to negate the permissions under Section 65 was not justified, especially in light of the precedent that had quashed similar departmental instructions and show-cause notices.

Treatment of Competing Arguments

The Court considered the Department's argument that the Delhi High Court's decision provided limited relief and did not apply broadly. However, the Court found this argument unconvincing, as the Delhi High Court had addressed the broader applicability of Section 65 and the MOOWR Regulations. The Court also considered the petitioner's argument that the Delhi High Court's decision should guide the current case, which it found persuasive.

Conclusions

The Court concluded that the petitioner had made a prima facie case for interim relief. It stayed the operation of the impugned proceedings, subject to conditions related to financial security and pending further orders from the Supreme Court.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Court referenced the Delhi High Court's judgment, particularly noting that the impugned instructions and show-cause notices were quashed because they exceeded the advisory and clarificatory functions of the Board under Section 151A of the Act.

Core Principles Established

The judgment reinforced the principle that departmental instructions must not exceed the statutory framework and should not negate permissions already granted under the Act without just cause. It also highlighted the importance of adhering to judicial precedents unless overturned by a higher court.

Final Determinations on Each Issue

The Court determined that the petitioner was entitled to interim relief, allowing the installation and operation of the equipment for power generation and supply for home consumption. It imposed conditions to secure the Department's interests, such as retaining a portion of payments received under power purchase agreements in a fixed deposit. The interim order was made subject to the outcome of pending proceedings in the Supreme Court.