Gujarat High Court
Dharmanandan Diamonds Pvt Ltd vs Union Of India & 6 on 20 March, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
C/SCA/2861/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 2861 of 2014
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DHARMANANDAN DIAMONDS PVT LTD.....Petitioner(s)
Versus
UNION OF INDIA & 6....Respondent(s)
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Appearance:
MR HARDIK P MODH, ADVOCATE for the Petitioner(s) No. 1
MR RITURAJ M MEENA, ADVOCATE for the Respondent(s) No. 1
MR RJ OZA, ADVOCATE for the Respondent(s) No. 2 - 4
NOTICE SERVED BY DS for the Respondent(s) No. 1 , 5 - 7
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 20/03/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Heard learned counsel for the parties for final disposal of the petition.
Though the petitioner has made several prayers in the petition, only the prayer for releasing the seized goods is pressed before us.
Briefly stated, the facts are that the petitioner is a company engaged in diamond cutting and polishing work. For the purpose of its manufacturing activities, the petitioner imported certain machineries. Such machineries would require sophisticated Page 1 of 7 C/SCA/2861/2014 ORDER software for operation. The issue pertains to duty liability on such imported software. It is not in dispute that in respect of about 74 such items, DGCEI is inquiring into whether such imports attracted service tax. Majority of these imports were made in the year 2007 and shortly thereafter. The petitioner actually put the goods to use and continued its manufacturing activity from its unit at Surat. At that stage, the Customs department initiated investigation regarding the customs duty liability on such imported software. These investigations are pertaining to 37 imports which are part of the 74 instances under the scanner of DGCEI. The Customs authorities prima facie believed that the petitioner did not include the price of the software in the machineries imported and thereby paid customs duty only on the machineries evading customs duty payable on the software. At that stage, the petitioner filed this petition.
Initially the goods were seized. Under a supratnama dated 17.1.2014, the goods were returned to the petitioner for safe keeping. One of the conditions was that the goods are being returned only for safe custody with instructions not to remove, sell or part with the same without prayer permission of the competent authority. During the pendency of this petition, the authorities also passed orders of provisional release of the goods. By an order dated 5.3.2014, the Deputy Commissioner of Customs, Mumbai ordered release of the goods on following conditions:
"1. On submission of Bond for full value of the seized Page 2 of 7 C/SCA/2861/2014 ORDER goods (seizure value) i.e. Rs.3,46,625/- (Rs. Three Lakhs forty six Thousand six hundred ;and twenty five only).
2. on execution of Bank Guarantee with self renewal clause for Rs.1,64,654/-
3. on payment of differential Customs duty along with applicable interest;
4. on submission of an undertaking on stamp paper that the importer will not dispute the identity, description, brand, etc. on the subject goods as found in the seizure panchnama dated 17.01.2014 in any proceedings like adjudication, prosecution etc, conducted/launched by the department under the Customs Act, 1962 or any other law for the time being in force."
On rest of the consignments, the Assistant Commissioner of Customs passed order on 13.3.2014, releasing the goods on following conditions.
"(i) Execution of Bank for the fullvalue of goods i.e. Rs.23,64,02,760/-
(ii) Execution of Bank Guarantee of 25% of the value of the goods i.e. Rs.5,91,00,690/-."
In the present petition, out of the several prayers made in the petition, we are examining the limited prayer whether on certain conditions the petitioner can be permitted to use the software for its manufacturing activity since rest of the prayers are not pressed.
The petitioner has been contending that the DGCEI has already recovered more than Rs.3 crores towards possible duty Page 3 of 7 C/SCA/2861/2014 ORDER liability under coercion. In any case, there can either be service tax or customs duty leviable though the petitioner contends that neither is payable in the present case. The inquiry of the Customs authorities is pertaining to 37 items imported out of 74 import instances being already looked into by the DGCEI.
These factual aspects are not in serious dispute. Under the circumstances, we are of the opinion that use of the software should be allowed to the petitioner by relaxing the rigourous conditions imposed by the authorities in the said two orders permitting provisional release.
It prima facie appears that the software in question can be subjected either to service tax if considered service or customs duty if considered goods. When service tax authorities have already collected nearly three crores of rupees towards possible duty liability, insisting that the petitioner provides further bank guarantee would not be appropriate. We are also, prima facie, of the opinion that insistence of bank guarantee of 25% of the value of the goods i.e. Rs.5.91 crores (25% of the full value of Rs.23.64 crores) is worked out on the total value of the goods imported inclusive of hardware. It was pointed out by the learned counsel for the petitioner that value of the hardware was already subjected to customs duty which was also paid. It was also pointed out that value of only software would be much less than Rs.23.64 crores mentioned by the Assistant Commissioner, in his order dated 13.3.2014.
Page 4 of 7 C/SCA/2861/2014 ORDERUnder the circumstances, when a sizeable sum of Rs.3 crores is already recovered by one arm of the Union of India, further condition of bank guarantee merely for using the software pending further investigation and possible adjudication would not be justified. Under the circumstances, it is directed that the petitioner would be allowed to utilize such seized machinery along with the installed software for its manufacturing activity in the machines imported and installed at its Surat unit on following conditions :
(1) The petitioner shall give a bond of the full value indicated by the authorities in their two orders of provisional release.
(2)The petitioner shall not remove the goods including the machines from its premises or sell, transfer, or create any charge thereon, or make any changes in the same and use the software only for the purpose of manufacturing activity as was being done.
(3)The petitioner shall file an undertaking before the Department to this effect within a period of one week from today.
(4)The petitioner shall not receive any amount out of the said sum of Rs.3.21crores recovered by the DGCEI even if the same is released in favour of the petitioner. If any such event arises, the petitioner shall first intimate the Customs authorities about the same giving at least six weeks clear notice. It would be Page 5 of 7 C/SCA/2861/2014 ORDER open for the Customs authorities to claim custody of such amount if so otherwise permissible in law.
This is in modification of the orders of provisional release passed by the authorities. Remaining conditions of supratnama as well as the provisional release orders except furnishing bank guarantee shall remain in operation.
Counsel for the department submitted that this Court had no territorial jurisdiction since the orders of provisional release have been passed by the Customs authorities at Mumbai. Heavy reliance was placed on a decision of Division Bench of this Court in the case of Venus Jewel v. Commissioner of Service Tax-I, Mumbai, 2012 (285) ELT 167 (Guj.) in which the Court observed as under:
"28. What can be culled out from various pronouncements of the Supreme Court is that one of themost important considerations so far as the aspect of territorial jurisdiction is concerned, is to ascertain, as to whether the facts pleaded have any bearing with the lis or the dispute involved in the case. In the present case, what we find is that the registered office of the petitioner is at Mumbai, and the show-cause notice was also received at the Mumbai office. All queries were answered before the Commissioner of Service Tax at Mumbai. Levy of Service Tax under Section 66A of the Finance Act, 1994 has also been challenged in the High Court of Bombay. Thus, according to us, no part of cause of action can be said to have arisen within the territorial jurisdiction of this High Court. It is difficult for us to accept the submission of Mr. Shah that diamonds were received at Surat after being imported for which the petitioner is being proceeded, and therefore, apart of cause of Page 6 of 7 C/SCA/2861/2014 ORDER action can be said to have been arisen within the territorial jurisdiction of his High Court. We are of the view that the fact that diamonds were received at Surat, even if believed to be true is not such a fact which by itself would confer territorial jurisdiction on this Court. We are of the view that this fact has no direct nexus or relevance so far as the main issues which are involved in the petition. It is no doubt true that in determining objection of lack of territorial jurisdiction the Court must take all the facts pleaded in support of cause of action into consideration albeit when making upon the inquiry as to the correctness or otherwise of the said facts. In other words, the question whether the High Court has territorial jurisdiction to entertain a writ petition must be answered on the basis of the averments made in the petition, the truth or otherwise thereof being immaterial."
In the present case, the petitioner has manufacturing unit at Surat. It has its machinery and software at Surat. The goods were seized at Surat by the DRI, Surat. The goods have been returned under supratnama also at Surat. It, therefore, cannot be stated that no part of cause of action had arisen within the territorial jurisdiction of this Court.
In view of the above, the petition is disposed of with the above noted directions.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn) Page 7 of 7