Punjab-Haryana High Court
Vidya Bagaria vs Uoi & Ors. on 20 February, 1998
Author: R.L. Anand
Bench: R.L. Anand
ORDER R.L. Anand, J.
1. Ms. Vidya Bagaria wife of Ratan Bagaria, r/o Hansi, Tehsil Hansi, District Hisar, has filed the present under Article 226 of the Constitution of India, praying for the issuance of a writ or any other order quashing the order of detention dated December, 1995, passed by respondent No. 2 u/s 3(1) of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (hereinafter referred to as 'the COFEPOSA Act').
2. It is stated by the petitioner that she along with her husband is residing at District Hisar. Her husband Ratan Bagaria is the Managing Director of M/s. Ratan Exports and Industries Limited, New Delhi. This concern was established in the year 1981. On 7.3.1995, the company of the husband of the petitioner received a purchase order for export of 4,000 pieces of Floppy Disc Drives from M/s. Indem General Trading, Dubai, which was confirmed in writing on 12.3.1995. These goods were to be supplied to M/s. Arvee International, Moscow. Rattan Bagaria negotiated with Alok Gupta, Director of M/s. Sujata Data Products Ltd. on 8.3.1995. After the final negotiations, the purchase order dated 24.3.1995 was received and back to back agreement dated 24.3.1995 was entered into on the basis of which 4,000 pieces of Floppy Disc Drives of 100% tested and certified, were to be supplied by M/s. Sujata Data Products at the price of Rs. 2,800/- per piece C and E Moscow. The benefit of duty drawback was to accrue to M/s. Sujata Data Products. Apart from the difference of the export price of UD dollars 83 per piece and purchase price of Rs. 2,800/- per piece, M/s. Ratan Exports and Industries Ltd. was not entitled to any payment.
3. Respondent No. 3 issued a show cause notice and it was alleged that on 31.3.1995, M/s. Ratan Exports Industries Ltd., New Delhi, filed a shipping bill No. 15665 dated 31.3.1995 under claim for duty drawback through their CHA namely M/s. Standard Container Services, Madras (Chennai), i.e., their clearing agent. The goods as per declaration were 4,000 pieces of 5-1/4 Floppy Disc Drives valued at Rs. 1,02,42,113 (FOB). The goods were declared to have been manufactured by M/s. Sujata Data Products, Hyderabad, and stuffed in containers under Central Excise seal. It was further alleged in the notice that the goods were subjected to preliminary examination, which revealed that the goods were only shells/cases of Floppy Disc Drives without any electronic component. The investigation further revealed as follows :-
"i) Incomplete Floppy Disc Drives had been manufactured by M/s. SDP, Hyderabad and were to be shipped in the name of M/s. Ratan Export and Industries Ltd., New Delhi the exporter on record under cover of shipping bill No. 15665 dated 31.3.1995 under claim for duty drawback. The shipping bill and its accompanying documents were signed by Shri Gopendra Pandey of M/s. Ratan Exports and Industries Ltd. The goods to be shipped under the aforesaid Shipping Bill were the aforesaid Floppy Disc Drives.
Further the export proceeds in foreign exchange were to be received by M/s. Ratan Exports and Industries Ltd., the exporter through their bankers, namely United Bank of India, 72, Janpath, New Delhi. The FOB value declared is Rs. 1,02,42,113/- and 22% of this value, working out to Rs. 22,53,264/- was claimed as duty drawback and the same was payable to M/s. SDP.
ii) As a result of investigation, enquiries and from the statements of S/Shri A. Suryanarayana Murthy, Ashok V. Apte (of M/s. Sujata Data Products) and G. B. Goyal of (M/s. Ratan Exports & Industries Ltd.), who are professional engineers, the item Floppy Disc Drive should have the certain major parts among others as the components which were detailed therein and were 14 in number.
It was alleged that only if all these components/parts are mounted/assembled the item stands to the description of "Floppy Disc Drives", as declared in the Shipping Bill.
iii) Detailed examination revealed that the consignment consisted of 4,000 nos./sets externally appearing to be floppy disc drives. Each set was individually opened and examined. The sets were allegedly found to contain the outer case with a metal frame inside. Not even a single set allegedly contained the essential parts/components like stepper motor, DC motor, main PCB, index PCB cable with connectors and magnetic head and others which form a complete Floppy Disc Drive. The value of these metal covers with base castings were ascertained to be about Rs. 5 lakhs.
iv) S/Shri A. Suryanarayana Murthy, R. L. N. Murthy and G. Raja Reddy all of M/s. SDP in their statements all dated 15.4.1995 maintained that they have assembled all the 4000 Nos. of Floppy Disc Drives with all its parts, tested, packed and despatched. Shri A. Suryanarayana Murthy and Shri Raja Reddy allegedly agreed that the samples drawn from the subject consignment in the presence of the Custom House Agent are from their factory and that they cannot be tested and are only "Junk".
v) That the claim of M/s. SDP that they have completed production/manufacture, assembly, quality control, tests/checks of 4000 Nos. of complete Floppy Disc Drives within a period of 12 days (18.3.1995 to 30.3.1995) appears to be incorrect and untenable.
vi) The report of Assistant Collector, Hyderabad vide letter dated 28.4.1995 allegedly showed that the Hyderabad unit of M/s. SDP had no material either in stores or in the production floor (shop floor) and further there was no evidence that they had purchased the parts required locally.
vii) It is allegedly clear that production commenced only on 18.3.1995, that only 12 days time was available, only casual workers attended to the job and the Floppy Disc Drives were incomplete.
viii) It was alleged that Shri Ratan Bagaria, who negotiated the deal with Shri Alok P. Gupta, Shri Goyal had stressed that the basic document was the agreement dated 24.3.1995 between M/s. SDP and M/s. Ratan Exports and Industries Ltd. that according to which M/s. SDP had an obligation to supply complete Floppy Disc Drives, 100% certified and tested and that they had already paid Rs. 38 lakhs to M/s. SDP.
ix) From the report dated 28.4.1995 of Assistant Collector Preventive, Hyderabad, it is clear that the factory had no evidence for components/parts used. From the report of Assistant Collector Preventive, Hyderabad, it is clear that from the stores of the unit only few items were issued. These items which were issued were reflected in the subject goods and for those which were neither issued from stores nor available in stores or production floor there was any record and they are missing parts in the Floppy Disc Drive. From the above, it was allegedly clear that the consignment supplied by M/s. SDP for the purposes of export is only incomplete floppy disc drives and do not stand to the description of complete Floppy Disc Drives - "100% Certified and Tested."
x) Further M/s. Sujata Data Products only prepared all the Shipping documents, and this goes to show that M/s. Sujata Data Products have manipulated the invoices.
xi) The value declared in the Form AR-4 signed by the authorised signatories of M/s. SDP and M/s. Ratan Exports & Industries Ltd., is US $ 3,32,000/- (CIF). It is on this basis the FOB value was declared as US $ 3,27,538/- equivalent to Rs. 1,02,42,113/- in the Shipping Bill. The consignments real value was only about Rs. 5 lakhs. This went on to show that the export value was over-invoiced by about 10 times and the value declared did not represent the correct value under Section 14(1) of the Customs Act, 1962. Both the firms viz. M/s. SDP and M/s. Ratan Exports and Industries ltd. had allegedly colluded in their attempt to export useless junk cases/covers in the guise of complete Floppy Disc Drives by overinvoicing to the tune of ten times or 1.000% and subscribed to a wrong declaration in the Shipping Bill under Section 50(2) of the Customs Act, 1962.
As exporters on record M/s. Ratan Exports & Industries Ltd., would have earned more than Rs. 1 crore as export proceeds in foreign exchange (which is exempted from income tax) by way of over-invoicing the subject goods.
xii) M/s. SDP in collusion with M/s. Ratan Exports & Industries Ltd. had claimed a duty drawback of 22% on the FOB value for the subject shipment, this works out Rs. 22,53,264/-. Had the consignment been allowed for the export in the normal course M/s. SDP would have recovered a duty drawback amount of Rs. 22,53,264/-.
xiii) It was alleged that Shri Ratan Bagaria, Managing Director, M/s. Ratan Exports & Industries Ltd., New Delhi and Shri Alok P. Gupta, M/s. SDP Ltd. were the main brains behind the attempted export of incomplete Floppy Disc Drives covered by the subject Shipping Bill No. 15665 dated 31.3.1995."
4. Reply to the show cause notice was filed and it was stated that the husband of the petitioner Ratan Bagaria had acted in an upright and bona fide manner. He categorically stated that he was not the manufacturer. An order was placed with M/s. Sujata Data Products for the supply of Floppy Disc Drives and he had at no stage conveyed to M/s. Sujata Data Products to supply only the covers and not the floppy discs. It was further made clear that there was no evidence to show that Ratan Bagaria had conspired with M/s. Sujata Data Products to manufacture and export covers instead of floppy disc drives and neither there was any incriminating statement by anybody to that effect. It was also made clear that it was only M/s. Sujata Data Products which had manufactured the goods, prepared the documents and sent them to their clearing agent in containers with the Central Excise Seal intact. Thereafter, respondent No. 3 adjudicated the matter and vide order dated 19.1.1996, rejected the objections of the company. Thereafter, Ratan Bagaria as well as his company filed an appeal before the Customs, Excise and Gold (Control) Appellate Tribunal, Madras (Chennai) and challenged the order passed by respondent No. 3 and the appeal is still pending. Thereafter, Ratan Bagaria went to Moscow on a business tour and during his stay at Moscow, he suffered various problems with regard to his health and he was advised to undergo repeated courses of laser therapy and spinal massage. He was also advised to be in constant medical examination and to take strict physical bed rest without any physical exertion. To the utter astonishment of the petitioner and her husband, even before the matter could be adjudicated by respondent No. 3, a detention order u/s 3(1) of the COFEPOSA Act has been passed by respondent No. 2. So much so, prosecution has also been launched against Ratan Bagaria and the case has been filed in the Economic Offence Court at Madras (Chennai). The petitioner has challenged the impugned order, Annexure P-5 on the ground that the provisions of section 3(1) of the COFEPOSA Act are not applicable. The allegations contained in Annexure P-5 do not constitute any offence warranting the passing of the order of detention under the COFEPOSA Act. The allegations do not fall within the meaning of smuggling of goods. It has further been alleged by the petitioner that there is an inordinate delay in passing the detention order. The alleged detection was in the month of March, 1995 while the detention order has been passed in January, 1996. There is no nexus with the alleged act of smuggling and the detention order. For the alleged single act, the provisions of the COFEPOSA Act cannot be invoked. Finally, it has been prayed that the order, Annexure P-5, be struck down.
5. Notice of the petition was given to the respondent U.O.I., which filed reply and denied the allegations. A preliminary objection was taken that no part of cause of action has arisen in the territorial jurisdiction of this High Court. The cause of action, if any, arose either at Chennai or at New Delhi, i.e., where the goods were confiscated and prosecution u/s 135 of the Customs Act was launched against Ratan Bagaria or from where the orders were issued. In support of the preliminary objection, reliance was placed upon The Additional Secretary to the Government of India and Others v. Smt. Alka Subhash Gadia and Another, JT 1991 (1) SC 549, and it was stated that the detention order was not liable to be challenged at pre-execution stage except on certain exceptional and limited grounds as stated in para 19 of the said judgment. Moreover, the High Court has a limited jurisdiction to examine the matter whether the formalities enjoined by Article 22(5) of the Constitution of India have been complied with or not.
6. On merits, the stand of the Government is that M/s. Ratan Exports and Industries Ltd. filed a Shipping Bill for the export of 4,000 pieces of Floppy Disc Drives to Russia with a declared FOB value of Rs. 1,02,42,113/-. The goods were supplied by M/s. Sujata Data Products Ltd., Hyderabad. As per the agreement between the exporters and M/s. Sujata Data Products, the goods stuffed into containers and sealed with the Central Excise Seal, were examined at Hyderabad by the officers of the Central Excise. The cargo left Hyderabad and reached Chennai Port for shipment to Moscow. On suspicion, the container was opened and examined by the officers of Chennai Custom House. On examination, it was found that the cargo consisted of incomplete floppy disc drives, i.e. only the shells of floppy disc drives instead of the declared floppy disc drives. Immediately, detailed investigation was conducted and a show cause notice was issued. The Commissioner in his adjudication order confiscated the goods. He allowed redemption of the goods on payment of a fine of Rs. 2 lacs. He also imposed a penalty of Rs. 1 lac each on M/s. Ratan Exports and Industries Ltd. and M/s. Sujata Data Products Ltd. and a penalty of Rs. 10,000/- and Rs. 15,000/- on Ratan Bagaria, Managing Director of M/s. Ratan Exports and Industries Ltd. and Alok Gupta, Director of M/s. Sujata Data Products Ltd., respectively. All the penalty amounts have been realised by the Department. Had the export been allowed, the exporters would have obtained tax free remittance of Rs. 1.02 crores as sale proceeds. The duty drawback would also have been claimed to the tune of Rs. 22 lacs. Action under the COFEPOSA Act was initiated and detention orders were issued under the Act against Ratan Bagaria and Alok Gupta but till date they are absconding and for this reason, the detention order could not be invoked. It has been admitted by the respondent that prosecution action has been launched against Ratan Bagaria and Alok Gupta by the Chennai Custom House. It is further pleaded by the respondents that the impugned detention order has been passed according to law and, therefore, the petition is liable to be dismissed.
7. A rejoinder to the written statement has been filed in which the petitioner has reiterated the allegations of the writ petition by denying those of the written statement. The petitioner has also placed on record some documents in support of her case.
8. I have heard Mr. V. K. Chaudhary, Advocate, on behalf of the petitioner and Mr. D. D. Sharma, Standing counsel for the U.O.I., and with their assistance have gone through the record of this case.
9. Section 3 of the COFEPOSA Act reads as follows :-
"3. Power to make orders detaining certain persons - (1) The Central Government or the State Government or any officer of the Central Government, not below the rank of a Joint Secretary to that Government, specially empowered for the purposes of this section by that Government, or any officer of the State Government, not below the rank of a Secretary to that Government, specially empowered for the purposes of this section by that Government, may, if satisfied, with respect to any person (including a foreigner), that, with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange or with view to preventing him from -
i) smuggling goods, or
ii) abetting the smuggling of goods, or
iii) engaging in transporting or concealing or keeping smuggled goods, or
iv) dealing in smuggled goods otherwise than by engaging in transporting or concealing or keeping smuggled goods, or
v) harbouring persons engaged in smuggling goods or in abetting the smuggling of goods, it is necessary so to do, make an order directing that such person be detained;
Provided that no order of detention shall be made on any of the grounds specified in this sub-section on which an order of detention may be made under section 3 of the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 or under section 3 of the Jammu and Kashmir Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Ordinance, 1988 (J & K Ordinance, 1 of 1988).
(2) When any order of detention is made by a State Government or by an officer empowered by a State Government, the State Government shall, within ten days, forward to the Central Government a report in respect of the order.
(3) For the purposes of clause (5) of article 22 of the Constitution, the communication to a person detained in pursuance of a detention order on the grounds on which the order has been made shall be made as soon as may be after the detention, but ordinarily not later than five days, and in exceptional circumstances and for reasons to be recorded in writing, not later than fifteen days, from the date of detention."
10. A reading of Section 3 would show that the provisions of this section can be successfully invoked if the Government is satisfied with respect to any person that with a view to preventing him from acting in any manner prejudicial to the conservation or augmentation of foreign exchange or with a view to preventing him from smuggling goods, the order u/s 3 is necessary.
11. The basic point in this case would be whether the attempt on the part of Ratan Bagaria or by his supplier M/s. Sujata Data Products will amount to an act of smuggling of the goods or it is a wrong declaration on the part of Ratan Bagaria to the custom authorities. It is the common case of the parties, that the company of Ratan Bagaria, in fact, wanted to export 4,000 numbers of floppy disc drives but instead of that, empty shells without containing the electronic components were found. Under Section 2(e) "smuggling" has the same meaning as in clause (39) of Section 2 of the Custom Act, 1962 (hereinafter referred to as "the Custom Act"). According to Section 2(39) of the Custom Act, smuggling in relation to any goods means any act or omission which will render such goods liable to confiscation u/s 111 or u/s 113. For our purposes, Section 113 sub clause (d) of the Customs Act would be relevant, which lays down that "any goods attempted to be exported or brought within the limits of any custom area for the purpose of being exported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force shall be liable to confiscation". Prohibited goods are again defined in Section 2(33) of the Custom Act and according to it, it means any goods the import or export of which is subject to "any prohibition under this act or any other law for the time being in force but it does not include any such goods in respect of which the condition subject to which the goods are permitted to be imported or exported have been complied with". The export of empty shells of floppy discs is not prohibited goods. In these circumstances, it can be safely said that at the most, the husband of the petitioner Ratan Bagaria or his supplier had tried to dupe the custom authorities by submitting a wrong declaration or by submitting the misdescription of the goods to be exported but it is difficult to hold, prima facie, that the attempt was made for the smuggling of the goods, within the meaning of section 3(i) or (ii) of the COFEPOSA Act.
12. Now, it is to be seen whether the impugned order, Annexure P-5, can be sustained in the eyes of law or not.
13. After incorporating the previous history of the case, it has been stated that Sarvshri Ratan Bagaria and Alok Gupta were the main brains behind the attempted export of incomplete floppy disc drives covered by the subject Shipping Bill No. 15665 dated 31.3.1995. In para 7 of the impugned order, it has been stated as follows :-
"From the foregoing facts and circumstances and the statements and other evidences on record as discussed herein above, I am convinced that you have knowingly engaged yourself in attempting smuggling of goods. Although the adjudication proceedings under the Customs Act, 1962 have already been initiated against you in the matter but considering your activities and propensity, and your inclination towards the smuggling activities, I am satisfied that unless prevented you will continue to act in such prejudicial manner in future. Even though prosecution proceedings under the Customs Act, are likely to be initiated against you, I am satisfied that it is necessary to detain you under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (as amended) with a view to preventing you from smuggling of goods in future."
14. This court is not in agreement with the opinion formulated by the detention authorities that the act, prima facie, committed on the part of Ratan Bagaria or his associate amounted to smuggling of goods or abetting the smuggling of goods. There is a clear distinction between smuggling of goods and wrong description of the goods.
15. The learned counsel for the petitioner placed reliance upon Parduman Singh v. State of Punjab, 1988 (2) Recent CR 423, to contend that the impugned order, Annexure P-5 is liable to be quashed as it is silent under which clause of section 3(1), the activities of the detenu fell. I find sufficient force in this submission. A reading of the impugned order, Annexure P-5, would show that it is silent as to how the impugned act fell within the meaning of smuggling or attempt to commit smuggling. The impugned order has been passed after reproduction of the previous background and by incorporating those averments which were the subject matter of prosecution against Ratan Bagaria and Alok Gupta. Once the order is silent with regard to the details of smuggled goods or smuggling activity, it would show that there was non-application of the mind on the part of the detaining authority and, in these circumstances, the order of detention could not be sustained in the eyes of law. On the contrary, the learned standing counsel for U.O.I. Mr. D. D. Sharma, has referred to Kumarunnisa v. Union of India and Another, 1991 (2) Recent CR 401, Rajendra Kumar Natvarlal Shah v. State of Gujarat and Others, 1988 Crl. LJ 1775, Smt. Hemlata Kantilal Shah v. State of Maharashtra and Another, AIR 1982 SC 8, Abdul Sattar Ibrahim Manik v. Union of India and Others 1992 SCC (Crl.) 1 and Additional Secretary to Government of India and Others v. Smt. Alka Subhash Gadia and Another, 1992 SCC (Crl.) 301, and submitted that the petitioner has no locus standi to challenge the detention order at pre-execution stage; that the detention order can be passed on a solitary incident; that the possibility of prosecution is no bar to the detention; that the delay in passing the detention order does not necessarily lead to an inference that subjective satisfaction has not been complied with by the detaining authority before passing the impugned order.
16. Before I proceed further into the matter, I may say that the case law which has been relied upon by Mr. Sharma is off the point.
17. Now, I concentrate on the issue whether the alleged act attributed to Ratan Bagaria and his associate amounts to smuggling of the goods or attempted smuggling of the goods. I have already given answer to this proposition that a wrong declaration or misdescription of the goods to the custom authorities would not tantamount to the smuggling of the goods until and unless it is established that the goods sought to be exported were prohibited goods which could not be exported.
18. Now, I come to the issue whether this court has the territorial jurisdiction to entertain this petition and whether the writ petition is maintainable without the execution of the detention order.
19. This court will entertain the petition if the cause of action or a part of it had arisen within the jurisdiction of this court. No doubt, the impugned order was passed from New Delhi and the goods were attempted to be sent abroad from Chennai. Nevertheless, the order could be executed in Haryana, of which State the husband of the petitioner is a bona fide resident. Resultantly, this court has the territorial jurisdiction to entertain this petition. Even the Supreme Court has stated that for valid reasons, the court has the power of judicial review though the detention order has not been served or executed. Here the challenge has been given by the petitioner to the order itself and it is not necessary on the part of the petitioner or her husband to wait till the order of detention is actually executed.
20. Even the impugned order, Annexure P-5, is liable to be quashed on the ground that it has been passed on the basis of a single incident of alleged smuggling. There is no other material available on the record from which it can be inferred that the husband of the petitioner had been indulging in the smuggling of the goods previously. I have already stated above that the alleged act does not constitute an act of smuggling or an attempted act of smuggling. At the most, it is the case of wrong declaration and misdescription of the goods with the intention to evade the duty. The wrong declaration is an offence under the Customs Act for which the petitioner and his associate are facing trial in the Economic Offences Court at Chennai. In this view of the matter, the impugned order, Annexure P-5, is also liable to be quashed because it has been passed on non-existent facts. It has been held in Gurjeet Kaur v. The Secretary to Government of Punjab and Others, 1996 (3) RCC 583, that when the detention order has been passed only on the basis of single incident of alleged smuggling and that no other material is available on the record from which it can be inferred that the petitioner had been indulging in smuggling of the goods previously, the ground of detention on non-existent facts, cannot be sustained in the eyes of law.
21. Resultantly, I allow this petition and strike down the impugned order, Annexure P-5, with specific observation that the quashing of the impugned order, Annexure P-5, in no manner, will debar the Government from prosecuting the petitioner or any body else for violating the Customs law. There shall be no order as to costs.