Bombay High Court
The Commissioner Of Customs ... vs Lkp Merchant Financing Ltd on 27 January, 2010
Author: V.C.Daga
Bench: V.C.Daga, K.K.Tated
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bgp
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
CUSTOMS APPEAL NO.34 OF 2005
The Commissioner of Customs (Preventive)
New Customs House, Ballard Estate,
Mumbai - 400 038. ..Appellant
Vs.
LKP Merchant Financing Ltd.
112A/203, Embassy Centre,
Nariman Point,
Mumbai - 400 021. ..Respondent
Mr.P.S.Jately for appellant.
Mr.V.M.Doiphode i/b. V.M.Doiphode & Co. for respondent.
CORAM :- V.C.DAGA &
K.K.TATED,JJ.
DATE : 27TH JANUARY,2010
JUDGMENT (PER : V.C.DAGA,J.)
1. This appeal filed by the Commissioner of Customs (Preventive), Mumbai, under Section 130 of the Customs Act,1962 ("the Act" for short) arising out of the order of the Customs, Excise and Service Tax Appellate Tribunal, West Regional Bench, Mumbai ("the Tribunal" for short) was admitted by an order dated 19th October, 2005.
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BRIEF FACTS:
2. The office premises of the respondent M/s.LKP Merchant Financing Ltd.
Colaba ("LKP" for short) was searched by the Officers of DRI, Mumbai on 14th July, 1997, on the basis of information. During the search, the Officers intercepted two persons who identified themselves as Hanif Godhrawala of Hotel Zam Zam, Money Changing Division, Mumbai and Rajesh Mhatre of M/s.Gulf Enterprises respectively. Certain incriminating documents were taken over from the premises of respondent-LKP along with two pay orders recovered from the two persons and were seized under the provisions of the Act.
3. The respondents are full-fledged money changer operating under the license issued by the Reserve Bank of India ("RBI" for short). The respondents, in the normal course of business claims to have sold foreign currency to another full-fledged money changer duly licensed by the RBI i.e. Hotel Zam Zam against pay orders received from them. The pay orders received were credited into the account of the respondent between 10th July, 1997 to 14th July, 1997 and the amount equivalent to pay orders were seized by the DRI on 28th August, 1997 and 29th August, 1997. The equivalent amounts were later on given by the respondent's Banks to Commissioner of Customs through RBI. A seizure memo was drawn on 28th August, 1997 in respect of an amount of Rs.42,37,750/- received by pay order which was lying in credit in the account of the respondent-LKP with Karnataka Bank Ltd. Another seizure memo was drawn on 29th August, 1997 with regard to a sum of Rs.18,79,350/- lying in the credit in the account of respondent-LKP with BMC Bank Ltd. The seized amounts were deposited on 9th October, 1997 in the State Treasury.
4. The Customs Department issued show cause notice dated 9th January, 1998 to the respondent to show cause interalia; as to why the amount of Rs. 42,37,750/- lying in the current account of respondent-LKP with the Karnatabak Bank and Rs.18,79,350/- lying in their account with Bombay ::: Downloaded on - 09/06/2013 15:33:15 ::: 3:
Mercantile Bank representing the sale proceeds of the smuggled foreign currency should not be confiscated under the provisions of Section 121 of the Act. In paragraph 40 of the show cause notice, after referring to the relevant extracts of the bank account, it was alleged that pay order issued in favour of respondent-LKP were the process of the cash amount which had been deposited by Shri Haneef Ghodrawala and Rajesh Mhatre in two accounts after having received the same from Shri Suleman Patel as deposed in their statements. This amount of cash as per show cause notice was the sale proceeds of the smuggled foreign currency given by Suleman Patel and Shambunath Mishra on earlier dates to the respondents.
5. The respondent-LKP filed their reply. After hearing the respondent, the Commissioner of Customs (Prevention) by an order in original dated 21st August, 1998 confirmed the show cause notice observing that the money lying in the bank account of the respondent-LKP were the sale proceedings of smuggled foreign currency and hence liable to confiscation under Section 121 of the Act.
6. The respondent-LKP carried the matter in appeal before the Tribunal. The Tribunal was pleased to allow the appeal observing as under:
a) That it was not disputed that the above said amounts represented the sale proceeds of foreign currency sold by the respondent. It is not tainted in any way since it was obtained from RBI in the regular course of business transaction.
b) That the Indian Currency confiscated by the Commissioner is the sale proceeds of Foreign Currency which was not smuggled.
c) That the transaction was complete the moment remuneration for sale of the foreign currency came into the account of the appellant-LKP and that the investigation did not reveal complicity of the appellant-
LKP with the nefarious activities of the persons which were concerned with Hotl Zam Zam (Money Changing Division).
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7. Being aggrieved by the aforesaid order the Commissioner of Customs(A), Revenue has invoked the appellate jurisdiction of this Court under Section 130 of the Act. The said appeal was admitted by an order dated 19th October, 2005 to consider following substantial questions of law:
"Whether on the facts and circumstances of the case, the Tribunal was justified in law in quashing the order of confiscation under section 121 of the Customs Act, 1962 and releasing the confiscated Indian Currency of Rs.42,37,750/- and Rs.18,79,350/- to the respondent even though -
(a) the said Indian Currency lying in the Bank account represented the sale proceeds of smuggled foreign currency.
(b) the foreign currency obtained from the said Indian Currency is also smuggled.
REFRAMED QUESTION OF LAW:
8. At the outset, having heard the parties on the above question of law framed at the time of admission, we must observe that the said questions of law do not arise from the order of the Tribunal, since it is pregnant with the assumption that the Indian currency lying in the bank represented the sale proceeds of the smuggled foreign currency. Hence, it needs to be reframed.
The correct question of law ought to be: Whether the credit balance lying in the account of respondent-LKP with the Karnataka Bank Ltd. deposited on 28th August, 1997 and with BMC Bank Ltd. deposited on 29th August, 1997 could be said to be the sale proceeds of the smuggled currency? If the findings are affirmative, then another question would be: Whether they were liable to be confiscated under Section 121 of the Customs Act?
SUBMISSIONS:
9. Mr.Jately, learned Counsel for the Revenue urged that the appellate Tribunal was not justified in quashing the order of the confiscation under Section 121 of the Act and releasing the confiscated Indian currency . It failed ::: Downloaded on - 09/06/2013 15:33:15 ::: 5:
to appreciate that the amount lying credited in the bank account of the respondent-LKP represented the sale proceeds of the smuggled foreign currency. In his submission, the show cause notice had clearly spelt out that the smuggled foreign currency obtained was converted into Indian currency. That the foreign currency obtained from respondent by the representatives of Hotel ZamZam (FFMC) was handed over to Shambhu Natha Mishra, who in turn sold it to persons who were smuggling the same to Dubai. According to him, the sale proceeds of the aforesaid foreign currency were subsequently routed through the banking channels from the accounts of Hotel Zam Zam (FFMC) and respondent-LKP. He, thus, submits that sub section 2 of Section 22 of the Act defines "goods" which includes currency as such seizure and confiscation thereof was legal and valid. In his submission, the Tribunal failed to appreciate this aspect of the matter.
10. Mr.Jately further submits that the Tribunal, by its order in the case of Wall Street Finance Ltd. Vs. Commissioner of Customs (Prev.) Mumbai 2997 (209) E.L.T. 427 (Tri-Mumbai) has held that the liability to confiscation of sale proceeds of smuggled goods continues unbated even if their form undergoes a sea change. According to him, the legislative intent is to ensure that the smuggled goods do not escape the just punishment merely on account of a change in its form. He placed reliance on the Apex Court judgment in the case of Collector of Customs Vs. V.D.Bhurmal AIR 1974 SC 859. He, thus, prayed that the questions framed needs to be answered in favour of the Revenue and the impugned judgment and order is liable to be quashed and set aside.
11. Per contra, Mr.Doiphode, learned Counsel for the respondent-LKP urged that the amount seized and later confiscated and released by the Tribunal cannot be considered as sale proceeds of smuggled goods. The respondent had deposited this amount in their account after selling equivalent foreign exchange, as such, Section 121 of the Act cannot be stretched to apply to the sale proceeds arising out legal transaction. At the most, it can only be applied ::: Downloaded on - 09/06/2013 15:33:15 ::: 6:
to the immediate sale proceeds of the smuggled goods. He submits that the factual matrix of the case is that the Indian currency confiscated by the Commissioner is a product of a genuine transaction of foreign currency as such it cannot be called sale proceeds of smuggled foreign exchange. As per the submission made, subject transaction was complete and the proceeds of sale of foreign currency had came into the account of the respondent-LKP. The respondent-LKP had a legitimate claim over the said money illegally confiscated from their account.
12. Mr.Doiphode submits that the investigation does not reveal complicity of the respondent-LKP with the nefarious activities of the person concerned with Hotel Zam Zam, Money Changing Division. He reiterates that the respondent-LKP's transaction of sale of foreign exchange to Hotel Zam Zam, Money Changing Division i.e. with other full fledged money changer was bonafide transaction for which respondent-LKP had received pay orders for an amount of Rs.18,79,350/- and Rs.42,37,750/-. The said pay orders were deposited in the bank account on or about 10th to 14th July, 1997; whereas the DRI seized equivalent amounts only 28th August, 1997 and 29th August, 1997 from the bankers of the respondent-LKP. The bankers in turn much later issued pay orders in the name of the Customs. In nutshell, submission is that, the respondent-LKP, had received money as genuine consideration for the sale of foreign exchange to M/s.Hotel Zam Zam as such sale was not tainted. Whatever received was bonafide sale proceeds out of genuine money transaction. At that stage, the foreign exchange sold was not in contravention of any of the provisions of the Act. The respondent-LKP had nothing to do with what happened subsequent to the foreign currency sold to Hotel Zam Zam.
13. Mr.Doiphode further submits that the consideration received by the respondent-LKP by way of pay orders was already deposited in the bank and the funds were utilized. The amounts lying in the bank were not identifiable with money received by the respondent-LKP out of the transaction of sale of ::: Downloaded on - 09/06/2013 15:33:15 ::: 7:
foreign exchange. Therefore, by no stretch of imagination the amounts lying in the bank can be considered as sale proceeds of smuggled foreign currency.
Apart from this, there was no immediate nexus with the sale of foreign currency. In his submission Section 121 can only be applied to the immediate sale proceeds of the goods smuggled. Accordingly to him, the sale proceed received from Shambunath and his associates were alone liable to be confiscated under the provisions of Section 121. Foreign currency purchased in exchange of Indian currency cannot not be held liable for confiscation u/s. 121 of the Act. If this be so, then the amounts seized were not the proceeds of the goods smuggled by Shambunath and his associates.
14. Mr.Doiphode further submits that the Custom Authorities did not challenge the findings of the Commissioner in the order dated 21st August, 1996 wherein the Commissioner had recorded following positive finding which became final and conclusive. The said findings reads thus:
"This Section 121 of the Customs Act cannot be stretched to be applied to sale proceeds when changed in form, it can only be applied to the immediate sale proceeds for the goods smuggled i.e. if it is found that foreign currency is smuggled out by Shambu and its associates, then the sale proceeds received from Shambu and its associates i.e. Indian currency received from him would be liable to confiscation under the provisions of Section 121 of the Act. Applying this test to the appellants' case, it is evident that the Indian currency confiscated by the Commissioner is the sale proceeds of FC which are not alleged as smuggled.
15. Mr.Doiphode further submits that, respondent-LKP did not have any knowledge of the smuggled foreign currency. In his submission, once the amounts are deposited in the bank, and the pay orders are arranged for purchase of foreign currency from the respondent-LKP, then such subsequent transaction will not be within the sweep of the provisions of Section 121 of the Act. In support of his submissions, Mr.Doiphode placed reliance on the judgments in the case of B.P.Nayak Vs. Commissioner of Customs (Prev.) Mumbai, Ramchandra Vs. Collector of Customs 1992 (60) E.L.T. (Tribunal), ::: Downloaded on - 09/06/2013 15:33:15 ::: 8:
Patel Madhavlal Maganlal & Co. Vs. Commissioner of Customs (Prev.) Mumbai 2002 (147) E.L.T.823 (Tri) Mumbai and prayed for dismissal of appeal by answering the questions against the revenue and in favour of the respondent-
LKP.
CONSIDERATION:
16. Having given thoughtful consideration to the rival contentions, the factual matrix unequivocally demonstrate that the respondent-LKP received pay orders against the sale of foreign currencies which appears to be a legitimate transaction and the pay orders were credited to the respondent's account on 10th July, 1997, 11th July, 1997 and 14th July,1997. It further appears that after a gap of more than one and half months i.e. on 28 th August, 1997 and 29th August, 1997, the DRI effected the seizure of the credit balance lying in the credit of the respondent-LKP and obtained pay orders from the bank in favour of the Revenue. The respondent-LKP after having received the said amount from and out of bonafide consideration arising out of sale of foreign currency, it is not posible to hold that it was a proceeds of smuggled goods. It is also clear that the respondent-LKP themselves were not involved in the smuggling activities of selling of foreign currency to Hotel Zam Zam, Money Changing Division. In our considered view, the amount lying in the bank and released by the Tribunal under impugned order cannot be considered to be a sale proceeds of the smuggled goods.
17. If one turns to Section 121 of the Customs Act, the said section reads as under:
121. Confiscation of sale-proceeds of smuggled goods:
Where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods, the sale-proceeds thereof shall be liable to confiscation.::: Downloaded on - 09/06/2013 15:33:15 :::
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18. The aforesaid Section contemplates sale of smuggled goods by a person having knowledge or reason to believe that the goods are smuggled then only, the sale proceeds thereof or value equal to the smuggled goods is liable to confiscation. Applying the ingredients of Section 121 of the Act, to the case in hand, the respondent-LKP sold foreign currency against the receipt of pay order and that transaction was a bonafide legal transaction. The pay orders were not the smuggled goods. The findings of fact in this regard were recorded by the Commissioner as well as the Tribunal in favour of the respondent-LKP. If that be so, by no stretch of imagination, the Indian currency received against the bonafide transaction, can be said to be the sale proceed of the smuggled goods. Section 120 of the Act specifically provides for confiscation of smuggled goods notwithstanding any change in their form. The subject transaction cannot be within the net of Section 120 of the Act.
19. In the aforesaid factual backdrop and the legal position discussion, if one turns to the findings recorded by the Tribunal, the Tribunal was perfectly justified in holding that the order of the Commissioner ordering confiscation was the order in contradiction. At one stage, the Commissioner has rightly interpreted Section 121 of the Act holding that it can only be applied to the immediate proceeds of the goods smuggled. However, while applying the provisions of Section 121 to the factual aspects of the case, the Commissioner committed an error which was rightly spotted by the Tribunal. The Tribunal was perfectly justified in holding that the amounts seized which was lying in the bank could not be considered to be a sale proceeds of the smuggled foreign currency. The view taken by the Tribunal based on factual and legal aspect cannot be faulted. In this view of the matter, the appeal is without any substance. The same is liable to be dismissed. The modified question is answered in favour of the respondent-LKP and against the Revenue. No order as to costs.
(K.K.TATED,J.) (V.C.DAGA,J.)
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