Goods Imported Violating FTDR/DGFT Notifications Are 'Prohibited Goods' Liable For Confiscation Under Customs Act : Supreme Court

The Supreme Court has held that peas and pulses, which were imported in violation of the notifications of the Central Government and the Director General of Foreign Trade issued under the Foreign Trade (Development and Regulation) Act, are liable to absolute confiscation under Section 125 of the Customs Act as "prohibited goods".

The Court granted a relaxation by allowing re-export of the goods on payment of the necessary redemption fine and subject to the importer discharging other statutory obligations.

A bench comprising Justices AM Khanwilkar and Dinesh Maheshwari observed :

"...the personal interests of the importers who made improper imports are pitted against the interests of national economy and more particularly, the interests of farmers. This factor alone is sufficient to find the direction in which discretion ought to be exercised in these matters. When personal business interests of importers clash with public interest, the former has to, obviously, give way to the latter"

Background

The Directorate General of Foreign Trade (DGFT) vide certain notifications had restricted the cap on imported pulses and peas. Through an earlier round of litigation before the  Supreme Court in the case Union of India vs Agricas LLP, these imports were held to be illegal and in contravention to the Notifications issued by DGFT and the intention of the importers were also observed to be not bona fide. Accordingly, the Hon'ble Supreme Court directed the customs authorities to adjudicate the matter under the Customs Act, 1962.

One of the adjudicating authorities in Bombay released the goods on payment of redemption fine through an order in original. However, the DGFT restrained the goods from being released as the decision to release the goods were not in line with the ruling of the Supreme Court in Agricas LLP.

The importers approached the High Court of Bombay for release of the goods. Because the order in original was not sub-judice before the Bombay High Court, review jurisdiction under Section 129D(2) was exercised by the Revenue against the order in original and an appeal was filed before the Commissioner Appeals. The Bombay High Court permitted the Commissioner Appeals to decide the matter. However, the High Court also released the goods. Union went on appeal to the Supreme Court as whether or not the goods be confiscated absolutely was the scope of adjudication before the Commissioner Appeals.

The Commissioner Appeals decided the matter and absolutely confiscated the goods in the meanwhile. The importers surpassed the Tribunal and approached the High Court of Bombay again for release of the goods. The High Court granted a stay over the Order in Appeal passed by the Commissioner Appeals. The Union again went on appeal before the Supreme Court.

All the impugned orders were stayed by the Supreme Court at the time of admission and the matter was heard at length.

Supreme Court's consideration

The first aspect considered by the Supreme Court was regarding the correctness (legality and validity) of the impugned orders. Vide para 56 the Court held that "Significantly, if the purport of the order dated 15.10.2020 had been that even if Commissioner (Appeals) would be deciding the matter in appeal, he could not order absolute confiscation of the goods because the High Court had ordered their release, it would immediately lead to the position that the order dated 15.10.2020 of the High Court carried inherent contradictions. In other words, if release of goods was the only option available with the authorities, the material part of consideration of the Appellate Authority had already been rendered redundant."

It further held vide para 57 that it is at once clear that when the matter was left for decision by the Commissioner (Appeals), there was neither any occasion nor any justification for the High Court to pass the order for release of the goods for the simple reason that any order for release of goods was to render the material part of the matter a fait accompli. This, simply, could not have been done

The next aspect considered by the Court was whether the goods are prohibited or restricted in nature. It was canvassed by the Union that the cap on these goods in question were 1.5Lakh MTs. Up to that quantity they are restricted. Any import beyond that quantity is prohibited. The Court vide para 68 held that "we have no hesitation in holding that the goods in question, having been imported in contravention of the notifications dated 29.03.2019 and trade notice dated 16.04.2019; and being of import beyond the permissible quantity and without licence, are 'prohibited goods' for the purpose of the Customs Act. The unnecessary and baseless arguments raised on behalf of the importers that the goods in question are of 'restricted' category, with reference to the expression 'restricted' having been used for the purpose of the notifications in question or with reference to the general answers given by DGFT or other provisions of FTDR Act are, therefore, rejected. The goods in question fall in the category of 'prohibited goods"

The next point for discussion was whether the goods in question are liable for absolute confiscation. The Court after elaborating Section 125 of the Customs Act wherein it mandates the adjudicating to release all goods on redemption if the goods are not prohibited and whether prohibited goods are in question, Section 125 gives a discretion to the adjudicating authority. The Court therefore tested the present case on whether discretion has been exercised properly.

The judgment authored by Justice Dinesh Maheshwari vide para 80 held that "it is but evident that the orders-in-original dated 28.08.2020 cannot be said to have been passed in a proper exercise of discretion. The Adjudicating Authority did not even pause to consider if the other alternative of absolute confiscation was available to it in its discretion as per the first part of Section 125(1) of the Customs Act and proceeded as if it has to give the option of payment of fine in lieu of confiscation. Such exercise of discretion by the Adjudicating Authority was more of assumptive and ritualistic nature rather than of a conscious as also cautious adherence to the applicable principles. The Appellate Authority, on the other hand, has stated various reasons as to why the option of absolute confiscation was the only proper exercise of discretion in the present matter." Further vide para 84 it was held that "the discretion could only be for absolute confiscation with levy of penalty. At the most, an option for re- export could be given to the importers and that too, on payment of redemption fine and upon discharging other statutory obligations."

Having held the all the above, the Court denied any prayers on the grounds of equity for the importers. The Court proceed to hold that the subject goods are held liable to absolute confiscation but, in continuity with the order dated 18.03.2021 in these appeals, it is provided that if the importer concerned opts for re-export, within another period of two weeks from today, such a prayer for re- export may be granted by the authorities after recovery of the necessary redemption fine and subject to the importer discharging other statutory obligations. If no such option is exercised within two weeks from today, the goods shall stand confiscated absolutely.

For the Union, the matter was argued by  Additional Solicitor General N. Venkataraman and assisted by V. Chandrashekara Bharathi, Sunitha B Rao and Liz Mathew, Advocates.

For the importers the matter was argued by Senior Advocate and former Solicitor General Ranjit Kumar, Senior Advocate Sujay Kathawalla and Advocate Sandeep Deshmukh.

Case Details

Title : Union of India vs Raj Grow Impex LLP and others

Citation : LL 2021 SC 271

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