Custom, Excise & Service Tax Tribunal
Jagdish Pershad Gupta vs Mumbai on 6 December, 2017
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEALS NOS: C/216 to 219/2012
[Arising out of Orders-in-Original No: CCP/KMP/ADJN/R&I/3/2005 and No. CCP/KMP/ADJN/R&I/4/2005 dated 7th April 2005 passed by the Commissioner of Customs (Preventive), Mumbai.]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
No
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
1.
No
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
2.
Seen
Whether Their Lordships wish to see the fair copy of the Order?
:
3.
Yes
Whether Order is to be circulated to the Departmental authorities?
:
4.
Jagson International Ltd
Jagdish Pershad Gupta
Appellants
versus
Commissioner of Customs (Preventive)
Mumbai
Respondent
Appearance:
Shri DB Shroff, Senior Advocate with Shri Sanjay Grover, Advocate for appellants Shri KM Mondal, Special Consultant for respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 06/12/2016 Date of decision: 07/04/2017 ORDER NO: ____________________________ Per: C J Mathew:
These four appeals arise out of orders-in-original no. CCP/KMP/ADJN/R&I/3/2005 and no. CCP/KMP/ADJN/R&I/4/2005 both dated 7th April 2005 of Commissioner of Customs (Preventive), Mumbai and pertain to the import of two rigs, viz., NorbeII and NorbeV, by M/s Jagson International Ltd. The imports were effected in consequence of successful bidding in a tender floated by Oil & Natural Gas Corporation (ONGC) for charter hire of 2 nos. jack-up drilling rigs for exploration work beyond the territorial waters of India. In exercise of powers under section 25 of Customs Act, 1962, Central Government issued notification no. 516/86-Cus dated 13th December 1986 exempting goods imported in connection with offshore oil exploration and exploitation from the whole of the duty of customs subject to production of certificate, from an officer not below the rank of a Deputy Secretary in the Ministry of Petroleum & Natural Gas, that the imported goods are required, and used, for offshore oil exploration; in addition, the exemption could be availed only upon the production of an essentiality certificate from the Directorate General Technical Development.
2. The importers acquired the above rigs on 'bare boat charter' terms from M/s Triangle Drilling Ltd and had them transported from Brazil under tow by MV Mighty Servant 3 which was anchored 20 miles off the coast of Daman without entering the territorial waters. The agents of tow vessel filed Import General Manifest (IGM) no. 2738 declaring the two rigs as cargo for discharge off the harbour at Bombay (as it then was). The cargo was off-loaded at the anchor location without filing a bill of entry. Norbe-II remained in the waters off India between 1st November 1988 and 21st December 1992 of which for 5 months and 21 days till 21st April 1989 it operated in the designated area. Norbe-V operated in Indian waters between 18th October 1988 and 20th December 1992 in non-designated area save for 15 months and 6 days, between 24th September 1990 and 30th December 1991, in designated areas. Spares and consumables were transshipped through Bombay Port in 66 consignments between October 1989 and April 1990 without payment of duty. On completion of the lease period, the rigs were returned to the owners who had it despatched under tow on 21st of December 1992. Thus, proceedings were taken up after the rigs were no longer in use for exploration work of Oil & Natural Gas Corporation.
3. Show cause notices dated 10th September 2003 and 29th September 2003 were issued by Commissioner of Customs (Preventive), Mumbai for demanding duty and proposing confiscation of the rigs for having been unauthorisedly import, and clandestinely cleared, in contravention of the extant Import-Export Policy (1988-91) and Customs Act, 1962, for failure to declare the two rigs as cargo, or as bottom cargo, owing to which the rigs were not subjected to assessment on import, for evasion of duty that was liable to be discharged upon entry of the two rigs into the designated area on 1st November 1988 and 24th September 1990 under section 12 of Customs Act, 1962 in the absence of bills of entry which is a prerequisite for recovery under section 28 of Customs Act, 1962 and for failure to obtain authorisation before export
4. The impugned order held that the duty liability of ` 85,90,07,461 crystallised upon entry of the rigs in designated areas, that these had been wrongly declared as cargo in the manifest, that the customs procedures had not been complied with, that the certificates furnished by the importers were forged, that, in the light of questionability of the certificate, there was no necessity to carry out verification of handwriting, that the failure of witness to appear for cross-examination would not vitiate the proceedings and that, in accordance with the decision of Hon'ble Supreme Court in Commissioner of Customs v. Virgo Steels [2002 (141) ELT 589 (SC)], the bar of limitation of time would not apply to recovery under section 12 of Customs Act, 1962. The goods were held liable for confiscation but the adjudicating authority imposed a fine in lieu of confiscation in the absence of the rigs. Penalty of ` 15,00,00,000 was imposed on M/s Jagson International Ltd and ` 1,00,00,000 on the Chairman, Shri Jegdish Pershad Gupta under section 112 and 114 of Customs Act, 1962.
5. The primary ground of appeal, and the submissions made on behalf of appellants by Learned Senior Counsel, is that Commissioner of Customs (Preventive), Mumbai was devoid of not jurisdictional competence to initiate proceedings against the importer and the imported goods. Pointing out that recovery of duty and confiscation proceedings could be triggered only upon import of goods into India within the meaning of such in the Customs Act, 1962. Mr DB Shroff contends that the rigs had operated only in the designated area of the Exclusive Economic Zone (EEZ) without entering the territorial waters. It is further contended that the empowerment of Commissioner of Customs (Preventive), Mumbai being restricted to the three districts of Mumbai, Thane and Raigad and, by any stretch, extendable to another twelve nautical miles into the waters from the appropriate baseline within which area the rigs had never brought into, impugned proceedings under Customs Act, 1962 was in excess of jurisdiction. Reliance is placed on the decision of the Tribunal in Nobel Asset Co Ltd v. Commissioner of Customs (Preventive) Mumbai [2006 (2005) ELT 901 (Tri-Mum)] as affirmed by Hon'ble High Court of Bombay in Commissioner of Customs (Preventive), Mumbai v. Nobel Asset Co Ltd [2008 (230) ELT 22 (Bom)] and in Sagarika Sea Crafts Ltd v. Commissioner of Customs, Visakhapatnam [2010 (261) ELT 825 (Tri-Bang)]. Attention was also drawn to notification no. 15/2002-Cus (NT) dated 7th March 2002. Other grounds were adduced in the appeal itself though not pressed at the hearing. On behalf of Revenue, extensive arguments were put forth to counter the challenge of competence to adjudicate. Reference was also made to the legality and propriety of invoking section 12 of Customs Act, 1962.
6. The challenge to the impugned order is mounted on three grounds that are structured hierarchically and requiring not just consideration in sequence but also progressive consideration upon dismissal of a preceding ground. The three grounds are jurisdictional incompetence, the applicability of bar of limitation in section 28 of Customs Act, 1962 and the dutiability of rigs at the time of import. Of these, according to the appellant, lack of jurisdictional competence is sufficient to quash the impugned order. Before we evaluate this contention, we consider it essential to examine the underpinnings of tax, and the authority to collect tax.
7. It cannot be denied that tax is the price paid for deriving the benefits of organised, civil society. At the same time, it cannot be concealed that tax is an intrusion and the exaction from the wealth created by economic entities is tolerated for want of the wherewithal to refuse. The history of mankind is replete with attacks on governance systems that stretched the power to collect tax to the breaking point by arbitrariness and use of for. The episodes of revolutions - by the barons at Runnymede and the masked men at the Boston tea party, to name a few - are attributable to the collection of taxes without authority of law. Closer home, the salt satyagraha during the struggle for freedom was a revolt against an unjust levy. Thus it is that every democratic polity, established under the pledge of affirmation of rule of law, circumscribes the authority to tax. And it is the very cornerstone of our constitutional framework that the authority vested in the tax collector flows from the popular will articulated through legislative approval. The sovereign legislature, by statute, commissions instruments of the executive to collect such taxes, and in such manner, as prescribed by law. That, and no other, is the sole sanctity and authority for taxing goods, services or possessions.
8. Jurisdictions are assigned by the Central Board of Excise & Customs in exercise of powers under section 4 of Customs Act, 1962 and thus acquires the sanctity of law for empowerment of such officers to discharge their function. If tax collection were to be a mere accounting exercise, jurisdiction of the tax collector would be of no consequence. However, such a proposition is fraught with the peril of administrative chaos and the threat of potential subversion of legislatively sanctioned authority. Acts in excess of law and jurisdiction, and their associated arbitrariness, undoubtedly, are remediable at the bar of the higher courts of the land but when justice is delivered only to those who can contemplate such redressal, tentacles of distortion and arbitrariness get hooked into the economic system. Remedy by the highest court of the land for should, therefore, not be the first option of the distressed. The primary bulwark against the least ingress of arbitrariness into the tax mechanism must exist within the system itself for it is the foremost responsibility of the system to comply with the prescriptions of the sovereign legislature. The Tribunal is one of the legislated instruments for preserving the integrity of the tax system. For that reason, we cannot disregard the challenge to jurisdiction as mere hair-splitting but to perceive it as the moment to restrain arbitrariness wherever found. More so, as satrapic rivalry characterises the functioning of field formations with certainty as the first casualty.
9. The scheme of Customs Act, 1962 envisages a funnel to direct licit movement of goods to the assigned jurisdictions. This is apparent from section 7 and 8 of Customs Act, 1962. Consequently, it is only the enforcement of law against illicit conveyancing of goods that are not restricted to the jurisdictions; but, here too, the goods are subject to action only when found within the jurisdiction. Duty is liable to be demanded by assessment under section 17, or section 18 if provisional, at the time of import or, if after importation, under section 28 of Customs Act, 1962. Therefore, empowerment under section 17, section 18 or section 28 devolves upon the proper officer which the adjudicating authority is not. The issue for determination, then, is the empowerment that is conferred by the presence of the goods within the jurisdiction of the adjudicating authority.
10. Commissioner of Customs (Preventive), Mumbai is an officer of customs and appointed as Commissioner as per section 4 of Customs Act, 1962. However, the jurisdiction of the said Commissioner is restricted to the geographical boundaries specified in the notification issued under section 4 of Customs Act, 1962. It is not in dispute that the jurisdiction is limited to the districts of Mumbai, Thane and Raigad. The imported goods that were held liable for confiscation were, admittedly, never, and physically could not ever have been, stored or used in the land area of these three districts. It is the submission of Revenue that the geographical boundaries extend into the sea.
11. The three districts are not creations of a Central law but owe their provenance to the laws of the State of Maharashtra. Learned Special Counsel for Revenue, Shri KM Mondal, attempted to appropriate the jurisdiction of the waters by reference to the definition of India, i.e., Section 2 ..
xxxxx (27) India includes the territorial waters of India;
(28) Indian customs waters means the waters extending into the sea upto the limit of the contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976) and includes any bay, gulf, harbour, creek or tidal river;
12. We find ourselves unable to confer sanctity to this claim as the inclusion of waters, whether territorial or of the exclusive economic zone, in the definition of India cannot extend to the states that compose the Union because the states are deprived of jurisdiction over the waters adjoining their respective coastlines. This has been settled by the Honble Supreme Court, in Republic of Italy & others v. Union of India & others [Order dated 18th January 2013 in WP (Civil) No, 35 of 2012], holding that the investigative and policing authority of state of Kerala does not extend beyond the coastline. In that decision, the Honble Supreme Court did take into consideration its decision in Aban Lloyd Chiles Offshore Ltd v. Union of India [2008 (227) ELT 24 (SC)] which has been relied upon by Mr Mondal to canvass applicability of Pride Foramer v. Union of India [2002 (148) ELT 19 (Bom)]. The jurisdiction claimed for the adjudicating authority by derivation is, therefore, not tenable. Neither are the seas or oceans amenable to delineation of boundaries for carving out as adjuncts of the land boundaries of the three districts over which the Commissioner of Customs (Preventive) is empowered to enforce the Customs Act, 1962.
13. It is clear also from the specific assignment of jurisdiction to Commissioner of Customs, Mumbai over designated areas in the exclusive economic zone that exclusion of jurisdiction of Commissioner of Customs (Preventive), Mumbai beyond the districts of Mumbai, Thane and Raigad is deliberate and, therefore, cannot be derived or appropriated for any purpose, laudable or otherwise. None other than Commissioner of Customs, Mumbai or any authority vested with all-India jurisdiction is empowered to exercise powers under section 111 or to assess and recover duty in relation the goods that were imported and deployed in the designated areas.
14. We must also not ignore an aspect that has been resorted to by the adjudicating authority and referred to in submissions of Mr Mondal: the authority to recover duties of customs that has not been paid or has been short-paid. The most obvious and apparent recourse is to invoke section 28 of Customs Act, 1962 which, however, has an inherent bar on raising demands that are sought for a period of more than one year preceding the date of notice or, in specified circumstances, more than five years preceding the date of notice. That period had elapsed well before the issue of notices leading to the impugned order. There are two parallel proceedings in the impugned order: one pertaining to confiscation of the imported goods under section 111 of Customs Act, 1962 and the other demanding duty on the said goods. The statute, while barring recovery of duty on goods imported beyond a period of five years immediately preceding the notice, does not impose any timeframe within which confiscation proceedings can be initiated. The imports have, indisputably, taken place well before the outer limit prescribed in extreme circumstances in section 28 of Customs Act, 1962. Fully cognisant of this constraint, the adjudicating authority demonstrated disinclination to depend on section 28 of Customs Act, 1962 and, claiming to draw sustenance from the decision of the Honble Supreme Court in Commissioner of Customs, Mumbai v. Virgo Steels Ltd [2002 (141) ELT 598 (SC)], proceeded to claim powers under section 12 of Customs Act, 1962.
15. Before proceeding further to analyse the amenability of section 12 of Customs Act, 1962 for recovery of short-paid or unpaid duty, it would be appropriate to examine the scope and applicability of the decision of the Honble Supreme Court in re Virgo Steels Ltd. There can be no doubt that decisions of courts are precedents that may lay the foundation for demand of duty in adjudication orders but it is, indeed, doubtful if a show cause notice can rely upon judicial decisions as authority for demanding duty. The reasons are not far to seek: the peculiarities, singularities and angularities that characterise a particular dispute which may find judicial settlement that may not necessarily be replicated in another; it is only upon hearing the person served with the notice, and upon taking note of the defence, that a reasonable conclusion can be drawn of similarity with or distinction from another dispute. It is, therefore, inappropriate to cite the authority of an order or decision to raise a demand. There could be no more weighty evidence of pre-judgement, prejudice and bias. In re Virgo Steels, the Honble Supreme Court was confronted with proceedings initiated against an importer who, admitting to non-utilisation of imported goods for the purpose claimed at the time of import, had waived the right to be issued with a show cause notice but, consequent upon being visited with detriment, sought to have the proceedings quashed on the ground of such denial. While considering this submission pertaining to non-compliance with the essential preconditions for invoking section 28 of Customs Act, 1962 which the Tribunal had held to have eroded the legality of recovery, it was ruled that section 28 is a procedural provision and any violation of the procedure merely renders the proceedings to be voidable without robbing the jurisdiction of the competent official. At no point did the decision accord its stamp of approval to substitution of the recovery provision, viz., section 28 of Customs Act, 1962, with the charging provision, viz., section 12 of Customs Act, 1962. The adjudicating authority is, therefore, on a footing that is entirely unsound in seeking to invoke section 12 of Customs Act, 1962; section 28 is the only perceptible provision for recovery of duty that has not been paid or has been short-paid on imported goods. It would appear that the adjudicating authority has chosen to ignore the most relevant portion of the judgement, i.e., We will next consider the requirement of Section 28 of the Act and the applicability of the principle of waiver to the said requirement of that Section. While so doing, it is to be noted that our discussion of Section 28 of the Act is with reference to the Section as it stood at the relevant time and not with reference to the existing Section 28 of the Act. The Tribunal by the impugned order has held that in the absence of a notice under Section 28 of the Act, the recovery of duty which has escaped collection, is impermissible in law. While accepting this argument, the Tribunal has placed reliance on a judgment of this Court in Collector of Customs, Calcutta v. Tin Plate Co. of India Ltd. (1996 (87) ELT 589). It is true that in the course of the above-cited judgment, this Court had held that a notice under Section 28 is a condition precedent, but having perused the said judgment carefully, we are of the opinion that this Court used the expression "condition precedent" with reference to issuance of notice under Section 28 and not with reference to the jurisdiction of the proper Officer under that Section. While the absence of notice may invalidate the procedure adopted by the proper Officer under the Act, it will not take away the jurisdiction of the Officer to initiate action for the purpose of recovery of duty escaped. This is because of the fact that the proper Officer does not derive his power to initiate proceedings for recovery of escaped duty from Section 28 of the Act. Such power is conferred on him by other provisions of the Act which mandate the proper Officer to collect the duty leviable. By a perusal of Chapter V of the Act in which Section 28 is found, it is seen that the charging Section which authorises the levy of customs duty is found in Section 12 of the Act. Section 17 contemplates the procedure for making an assessment in regard to duty payable while sub-section (4) of Section 17 makes a provision to empower the proper Officer to reassess the imported goods for duty if it is found that the assessment made at the time of importation was based on incorrect or false information. Section 142 of the Act found in Chapter XVIII provides for actual recovery of sums due to the Government. A cumulative reading of these provisions found in the Act clearly shows that the jurisdiction of a proper Officer to initiate proceedings for recovery of duty which has escaped collection, is not traceable to Section 28. The power to recover duty which has escaped collection is a concomitant power arising out of the levy of customs duty under Section 12 of the Act, and the same does not emanate from Section 28 of the Act. In our opinion, Section 28 only provides for the procedural aspect for recovery of duty, hence, any irregularity committed by a proper Officer in following the procedure laid down in Section 28 would not denude that Officer of his jurisdiction to initiate action for recovery of escaped duty but it may make such proceedings initiated by that Officer voidable. In that view of the matter, in our opinion, the term "condition precedent" used in the case of Tin Plate Co. (supra) is referable to the procedural requirement of Section 28 and not to the jurisdictional aspect of the proper Officer to recover the escaped duty. In the said view of the matter, we are of the opinion that the law laid down by this Court in Tin Plate Co.'s case (supra) is that issuance of a notice under Section 28 is a mandatory requirement of that Section, with which we are in agreement. We also notice the very important fact that in that case the question of waiver did not arise and what was considered by this Court was the contention of the Revenue that a subsequent letter written by the Revenue after the expiry of the period of limitation would cure the defect of non-issuance of a notice. The demand for duty is, therefore, without authority of law and is liable to be set aside.
16. The next point for consideration is the scope for recovery of duty by recourse to section 125 of Customs Act, 1962. The context requires us to examine the particular provision, viz.
125. Option to pay fine in lieu of confiscation. (1) Whenever confiscation of any goods is authorised by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being in force, and shall, in the case of any other goods, give to the owner of the goods or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit: Provided that, without prejudice to the provisions of the proviso to sub-section (2) of section 115, such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon.
(2) Where any fine in lieu of confiscation of goods is imposed under sub-section (1) the owner of such goods or the person referred to in sub-section (1) shall, in addition, be liable to any duty and charges payable in respect of such goods.
17. The adjudicating authority has referred to the aforesaid provision to claim that, akin to absence of time bar for recovery under section 125 of Customs Act, 1962, recourse to section 12 is also not hindered by any bar of limitation. Section 125 is relied upon by adjudicating authorities consequent upon the decision of the Honble Supreme Court in Commissioner of Customs (Import) v. Jagdish Cancer & Research Centre [2001 (132) ELT 257 (SC)]. In re Jagadish Cancer Research Centre, the Honble Supreme Court was concerned with duty foregone that, owing to failure to comply with conditions, was transformed into duty not paid in accordance with conditions of bond, or any commitment in lieu of, for claiming exemption from duty. Implicit in such a transformation is the determination of duty at the time of import which was permitted to be foregone in the specific set of circumstances. The erasure of those circumstances by subsequent acts of omission or commission triggered the transformation. In view of the specific prescription in section 125 that the person redeeming the confiscated goods was also liable to pay the duty, the liability crystallises as a condition of redemption. It needs noting that neither does section 125 of Customs Act specify the authority to determine the duty nor does it vest the obligation in a proper officer; consequently, section 125 of Customs Act, 1962 does not empower determination or assessment and cannot be resorted except when duty has been already been assessed but foregone at the time of import. Needless to state, the liability to pay the duty is a condition of redemption and is not enforceable when the goods are, themselves, not available for confiscation. It is acknowledged that the imported platform rigs was no longer available at the time of commencement of investigations and was never seized; nor was it available for confiscation. Naturally, redemption on payment of fine was beyond the realm of the possible and no longer is it possible to insist upon liability to pay the duty.
18. For the above reasons, we set aside the confiscation and demand of duty as having been exercised without authority of law. The penalties, too, fail. Appeals are allowed.
(Pronounced in Court on 07/04/2017) (C J Mathew) Member (Technical) (M V Ravindran) Member (Judicial) */as 18