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Bombay HC: Seizure of Imported Goods to Be Supplemented With Reasonable Grounds

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The petition under Article 226 of the Constitution of India had been filed for quashing the seizure memo dated 09.01.2020 issued by Mr. Uma Nath Chaudhary, Intelligence Officer, Directorate of Revenue Intelligence, Sub-Regional Unit, Vapi.

Brief Facts

The petitioner, in this case, is the private limited company engaged in the business of import and export of copper rods, bare wires, ferrous and non-ferrous metal, etc. The petitioner carried out the dealing of import and export with the code bearing No.0317500457 dated 05.04.2017. The petitioner imported copper rod 8 MM electrolytic tough pitch copper wire rod as per ASTM B49 along with two bills of lading dated 03.12.2019 and 07.12.2019. He assigned high seas sales of the imported goods to M/s. Chandrashekhar Industries added as Respondent no.4 with respect to the order dated 29.09.2020. Respondent no.4 was required to pay an agreed amount of high seas sale by entering into a written agreement. On the contrary, Respondent no.4 entered into an oral agreement with Petitioner. Thereafter, payment was made on the basis of oral agreement instead of a written agreement. Therefore, two bills of entry dated 10.12.2019 filed by respondent no.4 with respect to two imported transactions.  

Consequently, respondent no.4 refused to make payment and claimed cancellation of high seas sale orally agreed between the parties alongside, respondent no.4 would assist petitioner in getting NOC and substitution of the name of Petitioner in two bills of entry.

On the joint request of both parties, the office of respondent no.2 permitted amendment on two bills of entry with the name of petitioner in place of respondent no.4.  Moreover, respondent no.4 had filed two bills of entry both dated 10.12.2019 for import of consignment which was pending for charges clearance. Accordingly, the amendment dated 18.12.2019 made the change in the name from M/s. Chandrashekhar Industries, respondent no.4 with petitioner name and as the result of such actions, the amended bill of entry filed on merit rate of duty without any benefit of the notification dated on 28.02.1999.

In accordance with the directions of the Central Intelligence Unit on 23.12.2019, any amendment of 15 bills of entry including the above two bills of entry should not be considered. However, the Directorate of Revenue Intelligence (DRI), requested to cancel the amendment since the amendment was done in a fraudulent manner. It was later accepted by the departmental office of joint commissioner of customs on 29.04.2020 prior to which letter dated 23.04.2020 informed case against respondent no.4 for wrongful availment of benefit under notification from 28.02.1999 leading to the importer in two bills of entry to original importer i.e. respondent no.4.

Furthermore, petitioners went to the office of respondent no.2 for clearance of consignments on payment of customs duty on merit while stating the delay in clearance of imported goods. However, the office of respondent no.3 seized the imported goods through a seizure memo dated 09.01.2020.

Petitioner’s Arguments

Argument Against Seizure Memo

The counsel challenged the validity and authenticity of the seizure memo contended that the seizure memo stands in violation of sec 110 of Customs Act, 1962. He also claimed on the pretext of such an illegal seizure memo, he has to incur heavy charges since the date of seizure. The petitioner denied the allegation that respondent no.4 works under the supervision and control of Shri. Jayant Shantilal Mirani, owner of the petitioner.  The petitioner submits that under Sec 110 requires that the seizure of goods mandates reasons to believe by police officers that such goods are entitled to confiscation which in this case was at default due to the absence of reasons backed by the seizure memo. He also took sec 111 which entails the clause for the confiscation of imported goods but none such clause was in connection with facts and circumstances of the case. Even providing reasons would not suffice the validity of the seizure memo as the stated grounds in the affidavit are entirely incorrect and unfair. In addition to this, petitioners never claim exemption or benefit in respect of imported goods but instead an assessment of imported goods on full payment as tariff duty. Therefore, even then clause (o) of sec 111 would not be applicable.  

Argument Against Validity Of Seizure Memo

The petitioners started his business in 2017 and on the other hand respondent no.4 had been engaged before his commencement. There exist only a commercial relationship between petitioner and respondent with regard to selling and buying of imported copper wire rod.

For the matter of cancellation or amendment of the two bills of entry, it was served without any notice or hearing. Besides, there is no power upon the commissioner of Customs to nullify the amendment in the bills of entry under the Custom Act and also it was not his decision but under the influence of DRI. The cancellation of the amendment stands invalid and unjustified in the eyes of law.

Argument for Petitioner’s Title To the Goods and Invalidity of Cancellation of Bills of Entry

The petitioner pleads that bills of lading with respect to imported goods are in the name of the petitioner and in its possession. Thus, he has the valid title to the imported goods, and subsequently respondent no.4 could not have filed the bills of entry as these bills were amended with the consent and in presence of both parties. The petitioner denied the allegation raised by respondent no.1 and 3 that after the cancellation of bills, respondent no. 4 became the owner of imported goods. Even cancellation was without valid jurisdiction and in violation of the principle of natural justice. Thus, in this present case, if the seizure memo stands illegal how can the cancellation of bills suffice its legal validity. 

Respondent’s Arguments

Argument for Discrepancies in Usage of Imported Goods

The respondent No. 3 stated in his statement that through an intelligence report of DRI explained that respondent no.4 firm included three proprietorship firms in the diversion of imported material not used for manufacturing of lead wire for the electronic part as provided in the notification dated on 28.02.2019. The proprietor of other firms admitted that they didn’t manufacture lead wire for electronic parts in their factory and also admitted that most copper wire rods were sold in the open market. However, respondent no.3 also asserts that respondent no.4 works under the control of Shri. Jayant Shantilal Mirani who was the actual owner of the high seas seller i.e. the petitioner.

Argument for Validity of Cancellation of Bills of Entry

Since the imposition of cancellation of high seas sale aroused when the premises of the importer, high seas seller, and the concerned customs broker were searched by DRI, Ahmedabad, thereafter case was registered against respondent no.4 and petitioner then approached to custom authority on 18.12.2019 for amendment in two bills of entry. Furthermore, while searching the premises, 1607 kg of copper wire having a value of Rs.9,85,000.00 were seized on 16.12.2019 from the factory premises of respondent No.4 which runs in contradiction with notification of 28.02.1999. Therefore, such amendment in bills of entry was not bonafide, and thereby respondent action was right in cancellation of amendment of bills of entry through the production of various documents and affidavit of respondent no.3.

Argument for Seizure Memo Read With Provision of Custom Act

The seizure memo has to be read along with the Panchnama which mentions the violation of the Customs Act and therefore goods are liable for confiscation. Through the extract of seizure memo, it is contested that power of seizure of goods can be traced back under sec 110(1) of the Customs Act stating that if the proper officer has formed the belief that there is reason to believe for the confiscation of goods, he may seize such goods act as a condition precedent for the jurisdiction under sec 110 of Customs Act. The expression ‘reason to believe’ explains justified and considerable import and provides jurisdiction to the proper officer for seizing the goods.

Court’s Observation

This court took the reference of various relevant case law from the Supreme Court given as follows:

In Calcutta Discount Company Limited Vs. Income Tax Officer, 41 ITR 191, held that the expression “reasons to believe” refers to the existence of reasons which formed the belief in good faith rather than mere suspicion or subjective pretension. In other words, that belief must be based upon material information which in the opinion of the officer is valid and justified. The court is free to examine the validity of reasons with terms of rational nexus to the object of belief so formed.

Sheo Nath Singh Vs. Appellate Assistant Commissioner of Income Tax, 67 ITR 254, Supreme Court held that the expression of “reasons to believe” entails belief should be of an honest and reasonable man based upon reasonable grounds. The Income Tax Officer may act direct or circumstantial evidence but not suspicion

Observation For Panchnama On 09.01.2020

The court diverted the observation towards Panchnama dated on 09.01.2020 drawn on-premises where the seizure was made and signed by two witnesses. It was noticed that goods were imported by notification dated 28.02.1999 by the original importer i.e. M/s Chandrashekhar Industries rather than Petitioner. The officer informed panchas that respondent no.4 contravened the provision of the notification on 28.02.1999. Hence officers made the seizure of the imported goods under the provision of the Customs Act.

The combined reading of seizure memo and panchnama, it was released that seizure was executed by one officer named Uma Nath Chaudhary and on other hands, the seizure was done by an officer named Amit Kumar Sharma assuming both were proper officers under the ambit of sec 110(1) of Customs Act. Both officers did not record any reasons to believe liable for the confiscation of imported goods and may be seized. The real observation arises firstly when it comes into conclusion it cannot be considered that seizure is done by one officer and reasons are recorded by other officers and the secondly proper officer making seizure must have reasons to believe as it is the discretionary powers of the officer must be in conformity with the principle of natural justice. It can be concluded that no such reasons either written in panchnama or orally was recorded or mentioned in the seizure memo. 

Court’s Decision

The court was of the opinion through evaluation of document production that on the date of seizure, the title of bills of entry was in the name of the petitioner, and also petitioner did not undertake any benefit of the notification dated 28.02.1999. The affidavit filed by respondent no.3 was examined by this court found that documents contain high seas sale contract, non-negotiable copy of the bill of lading, high seas sale invoice and the commercial invoice, authority letter for customs broker from high seas sales buyer, and copies of importer-exporter code of both buyer and seller. All these documents required to be in written form signed by both parties and duly notified rather than orally. Therefore, respondents rightly stated that the sale contract has no validity and enforceability in the eyes of law, and on such basis, respondent no.4 could not have filed bills of entry of imported goods.

The customs authority has rightly allowed amendment and also petitioner was the owner of imported goods at the time of seizure date without availing of any benefit or exemption under notification on 28.02.1999. Therefore, on such reasonable and valid premises, this court believes that there is no reason that such imported goods had contravened a provision of sec 111 of Customs Act and thereby liable for confiscation and seized under sec 110 of the Customs Act.

The court held that the seizure memo dated 09.01.2020 was devoid of any reasons to believe by a proper officer interested in the work of seizing the imported goods and liable for confiscation. Therefore, a seizure is unjustified and illegal and all subsequent actions thereby cease to get its effect of validity. The execution of the amendment was justified but otherwise, cancellation of the amendment was done not with the application of mind but rather upon the direction of DRI, Zonal Unit, Ahmedabad. Such cancellation stands illegal because of the fact that the petitioner was not given an opportunity to be heard or present his consideration. 

Therefore, the seizure memo on 09.01.2020 is illegal and null in the eyes of law which required it to be set aside and quashed. Alongside, the seized goods need to be released to the petitioner after payment of duty and necessary formalities. 

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