Customs Act | S. 71 Inapplicable If Imported Goods Were Stocked Outside Notified Public Bonded Warehouse With Permission : Supreme Court

A portion of the Appellant's factory premises was notified as a public bonded warehouse. The Appellant, with the permission of Superintendent of Customs and Central Excise (“Superintendent”), partially stocked 264 cases of the imported goods outside the bonded warehouse but within the factory premises.

The Commissioner of Customs & Central Excise confiscated the 264 cases of imported goods and imposed customs duty on Appellant in terms of Section 71 read with the proviso to Section 28A of the Customs Act. The decision was affirmed by the Customs, Excise and Service Tax Appellate Tribunal (“CESTAT”). The Court has set aside the levy of customs duty, interest and the demand raised by the Commissioner of Customs & Central Excise against the Appellant in respect of the 264 cases.

The bench comprising Justice B. V. Nagarathna and Justice Ujjal Bhuyan, while partially modifying the CESTAT order has observed that, “Since the imported goods covered by the 264 cases were never warehoused inside the notified public bonded warehouse but were unloaded outside the notified area but within the factory premises of the appellant and kept under a shed on permission granted by the Superintendent which permission was neither cancelled nor revoked, question of warehousing the goods covered by the 264 cases within the notified public bonded warehouse did not arise. As a corollary, the further question of improperly or unauthorisedly removing the 264 cases from the notified warehouse to outside the said area but within the factory premises of the appellant attracting Section 71 and the consequences following the same did not arise.”

BACKGROUND FACTS

Section 71 of the Customs Act states that no warehoused goods shall be taken out of a warehouse except on clearance for home consumption or re-exportation, or for removal to another warehouse, or as otherwise provided by the Customs Act.

Further, Section 72 of Customs Act deals with goods improperly removed from warehouse, etc. As per Section 72(1)(b) states that where any warehoused goods have not been removed from a warehouse at the expiration of the period during which such goods are permitted under Section 61 to remain in a warehouse, the proper officer may demand and the owner of such goods shall forthwith pay, the full amount of duty chargeable on account of such goods together with all penalties, rent, interest and other charges payable in respect of such goods.

M/s Bhanu Iron and Steel Company Limited (“Appellant”) imported second hand steel mill machinery and parts covered by three transit bonds totaling 595 cases. In the factory premises of the Appellant, the customs authority notified an open area of 2000 sq. mts. as a public bonded warehouse. The imported goods covered by the 595 cases were to be warehoused in the notified public bonded warehouse without payment of customs duty. The Appellant, with the permission of the Superintendent granted, unloaded a 264 cases in a shed outside the bonded warehouse but within the factory premises.

In a search conducted by Preventive Branch of the Commissionerate, it was found that only 304 cases were stocked inside the bonded warehouse, whereas 264 cases were found outside the warehouse but within the industrial/factory premises of the Appellant. The remaining 27 cases were not found anywhere.

On 28.04.2005, the Commissioner of Customs and Central Excise (“Commissioner/Respondent”) passed the final adjudication order, whereby imposition of penalty, duty demand and interest on duty in respect of the missing 27 cases was confirmed. In respect of confiscated 264 cases, the Appellant was directed to pay customs duty of Rs. 39 Lakhs in view of Section 71 read with the proviso to Section 28A of the Customs Act. The Appellant was also allowed to redeem the confiscated goods on payment of fine.

In appeal, the CESTAT affirmed the order dated 28.04.2005. The Appellant filed an appeal before the Supreme Court against the CESTAT order, contending that Section 71 was not attracted in respect to the confiscated 264 cases of imported goods.

SUPREME COURT VERDICT

The Court noted that the permission granted by Superintendent to the Appellant to unload a portion of the cargo (264 cases) outside the public bonded warehouse but within the factory premises, was never cancelled by the Superintendent or Commissioner.

While holding that the 264 cases were not unauthorisedly removed from the notified public bonded warehouse, the Court observed as under:

“Infact, a view can reasonably be taken that the appellant as the owner of the goods had exercised its right under Section 64(d) which was endorsed by the Superintendent. Therefore, it would not be correct to say that the 264 cases found outside the notified warehouse but within the factory premises of the appellant were improperly or unauthorisedly removed from the notified public bonded warehouse.”

It was further observed that it is not the Respondent's case that the 304 cases found inside the notified warehouse were kept there beyond the warehousing period. Rather, the Respondent has alleged that 264 cases were unauthorisedly removed from the notified warehouse, as those were found lying outside notified area but within the factory premises of Appellant. That apart, 27 cases were found neither inside nor outside the notified warehouse.

Accordingly, the Court opined that Sections 71 and 72 of the Customs Act were inapplicable since the imported goods (264 cases) were never placed inside the notified warehouse.

“In such a scenario, the provisions of Sections 71 and 72 would not be applicable. Therefore, the decision of the respondent to invoke Section 71 and thereafter levy interest on the goods covered by the 264 cases under Section 28AB of the Customs Act was not justified. Since the imported goods covered by the 264 cases were never warehoused inside the notified public bonded warehouse but were unloaded outside the notified area but within the factory premises of the appellant and kept under a shed on permission granted by the Superintendent which permission was neither cancelled nor revoked, question of warehousing the goods covered by the 264 cases within the notified public bonded warehouse did not arise. As a corollary, the further question of improperly or unauthorisedly removing the 264 cases from the notified warehouse to outside the said area but within the factory premises of the appellant attracting Section 71 and the consequences following the same did not arise.”

The Court has set aside the levy of customs duty, interest and the demand raised by the Commissioner against the Appellant in respect of the 264 cases.

In respect of the missing 27 cases for which no explanation was given by the Appellant, the Court held that the CESTAT had correctly held that those 27 cases were improperly or unauthorisedly removed from the notified public bonded warehouse. The demand of customs duty and interest on the 27 cases has been sustained by the Court.

The Court has partially modified the CESTAT order.

Case Title: M/s Bisco Limited V Commissioner Of Customs And Central Excise

Case No.: CIVIL APPEAL NO. 4663 OF 2009

Citation : 2024 LiveLaw (SC) 257

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