Bombay High Court
Weizmann Limited vs Commissioner Of Customs (Adjudication on 30 March, 2012
Author: J. P. Devadhar
Bench: J.P. Devadhar, A. R. Joshi
PPD
1
1.CUAPP.41&43-06
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
[1] CUSTOMS APPEAL NO.41 OF 2006
Weizmann Limited,
having their office at Empire House,
214, Dr. D.N. Road, Ent. A.K. Nayak
Marg, Fort, Mumbai - 400 001. ..APPELLANT.
Versus
1. Commissioner of Customs (Adjudication),
having his office at Ballard Estate,
Mumbai - 400 038.
2. Directorate of Revenue Intelligence,
having their office at Hotel Waldorf,
4th Floor, 16th Arthur Bunder Road,
Colaba, Mumbai - 400 005.
3. Punjab & Maharashtra Co-operative
Bank Ltd., having their branch office
at 69, Uttam House, P.D'mello Road,
(Carnac Bunder), Mumbai.
4. Jankalyan Sahakari Bank Ltd.,
having their office at Khar, Mumbai. ..RESPONDENTS.
WITH
[2] CUSTOMS APPEAL NO.43 OF 2006
Weizmann Limited,
having their office at Empire House,
214, Dr. D.N. Road, Ent. A.K. Nayak
Marg, Fort, Mumbai - 400 001. ..APPELLANT.
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1.CUAPP.41&43-06
Versus
1. Commissioner of Customs (Preventive),
having his office at Ballard Estate,
Mumbai - 400 038.
2. Directorate of Revenue Intelligence,
having their office at Hotel Waldorf,
4th Floor, 16th Arthur Bunder Road,
Colaba, Mumbai - 400 005.
3. Punjab & Maharashtra Co-operative
Bank Ltd., having their branch office
at 69, Uttam House, P.D'mello Road,
(Carnac Bunder), Mumbai. ..RESPONDENTS.
ig ....
Ms. Anjali Chandurkar, Advocate i/b. Kanga & Co. for the Appellant.
Mr. Pradeep S. Jetly, for Respondent Nos.1 & 2.
Ms. Meghna Martins i/b. Purnanand & Co. for Respondent No.3.
....
CORAM : J. P. DEVADHAR &
A.R. JOSHI, JJ.
DATED : 30th MARCH, 2012.
ORAL JUDGMENT (PER J. P. DEVADHAR, J.) :
1. These two appeals were admitted on 7th September, 2006 on the following four identical questions of law :
1. Whether on a true and correct interpretation of Section 121 of the said Act, pay orders received by the appellants (FFMCs) for sale of foreign exchange by them, admittedly 2 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 3
1.CUAPP.41&43-06 in genuine transaction can be said to represent "sale proceeds of smuggled goods" and liable to confiscation merely because these pay orders were issued by the Bank which maintained an account of the purchaser of foreign exchange who had purportedly deposited the sales proceeds of smuggled goods therein?
2. Whether the Appellate Tribunal was right in holding that pay orders though obtained in respect of genuine transactions but not encashed represented sales proceeds of smuggled goods, when in respect of an identical transaction pay orders encashed were held to be as a result of a genuine transaction of foreign currency and thus not sale proceeds of smuggled goods in the case of LKP Merchants Finance Ltd. Vs. Commissioner of Customs (P) by an order No.A/1687/W2D/2004/C-1 in the Appeal No.C/50/99-
MUM dated 25th November, 2004.
3. Whether the appellants and persons similarly situated would have no locus standi to claim the amounts representing pay orders merely because such amounts have not been transferred to their account though such amounts were in the "pay order account" of the issuing Bank and not in the account of the person who is alleged to have deposited sale proceeds of smuggled goods ?
4. Whether payment by way of Bank draft / pay order is as 3 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 4
1.CUAPP.41&43-06 good as payment of cash and in the circumstances once a Bank draft / pay order is issued (which is honoured by the Bank from the Bank's own pay order account and not the accounts of its client) by the Bank the same represents sale proceeds in the goods of the person to whom the pay orders are issued ?
2. The appellant/assessee was dealing in the foreign currencies as Full Fledged Money Changer (FFMC, for short) after obtaining requisite permission from the Reserve Bank of India (RBI, for short) under the provisions of the Foreign Exchange Regulations Act, 1973 (FERA, for short).
3. In July, 1997 the assessee in the ordinary course of the business sold foreign currency to hotel Zam Zam and M/s Tiruchi Enterprises on receipt of pay orders equivalent to the Indian Currency. Before the said pay orders could be encashed, the Officers from the Directorate of Revenue Intelligence (DRI, for short) seized the pay orders from the custody of the assessee on 16th/17th July, 1997 and later on encashed the same. According to the DRI, the amounts under the pay orders were the sale proceeds of the smuggled goods which were liable to be confiscated under the provisions of the Customs Act, 1962 (1962 Act, for short).
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1.CUAPP.41&43-06
4. Accordingly, show cause notices were issued to the assessee calling upon them to show cause as to why the amounts specified under the pay orders should not be confiscated under the provisions of Section 121 of the 1962 Act and why penalty should not be imposed under Sections 112 & 114 of the 1962 Act. The assessee opposed the claim by filing detailed reply. However, by the orders-in-original dated 21st August, 1998 and 31st March, 2000 the adjudicating authority confiscated the amounts under the seized pay-orders on the ground that the said amounts represented the sale proceeds of the foreign currencies which were eventually smuggled out of India and hence liable for confiscation under Section 121 of the 1962 Act. However, no penalty was imposed as there was no evidence to show that at the time of selling the foreign currency the assessee had any knowledge that the said foreign currency was ultimately going to be smuggled out of India and that there was no evidence to show that the assessee had breached any of the provisions of the 1962 Act.
5. On appeals filed by the assessee, the CESTAT by its order dated 29th December, 2004 referred the matter to the Larger Bench as there were conflicting decisions of the Tribunal. The Larger Bench of the CESTAT by its order dated 12th August, 2005 held that notwithstanding the issuance of pay orders, the amount under the pay orders lying in the bank issuing the pay orders represented the sale proceeds of the foreign 5 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 6
1.CUAPP.41&43-06 currencies smuggled out of India and hence its confiscation is justified.
The Larger Bench following its decision in the case of Wall Street Finance Ltd. Vs. Commissioner of Customs (Prev.) Mumbai reported in 2002 (147) ELT 112 (Tri.Mumbai) held that the assessee had no locus standi to claim the currency under the pay orders seized from the assessee and encashed by the Customs Department. Subsequently, the Tribunal following the Larger Bench's decision disposed of both the appeals filed by the assessee by its common order dated 21st October, 2005 by holding that the amounts under the pay orders represented the sale proceeds of the smuggled-out foreign currency and its confiscation was justified and that the assessee has no locus standi to claim the currency. Challenging the aforesaid order these two appeals are filed by the appellant/assessee.
6. Ms. Chandurkar, learned Counsel appearing on behalf of the appellant assessee submitted that the impugned order of the CESTAT is liable to be quashed and set aside as the issues raised in the appeals are concluded in favour of the assessee by the decisions of this Court. As regards the locus standi of the appellant to claim the amount confiscated by the Customs is concerned, Counsel for the assessee relied upon a decision of this Court in the case of Wall Street Finance Ltd. Vs. Union of India being O.S. Writ Petition No.493 of 2000 decided on 25th April, 6 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 7
1.CUAPP.41&43-06 2006. Similarly, Counsel for the assessee relied upon a decision of this Court in the case of Commissioner of Customs (Preventive), Mumbai Vs. LKP Merchant Financing Ltd. reported in 2010(254) ELT 615 (Bom.), wherein it is held that the amounts under the pay-orders, which were seized from the custody of an assessee, would represent the sale proceeds of the foreign currency sold by the assessee in the regular course of business and, therefore, the assessee would be entitled to receive the amount under the pay orders. Accordingly, Counsel for the assessee submitted that the appeals be allowed by answering the question in favour of the assessee.
7. Mr. Jetly, learned Counsel appearing on behalf of the respondents fairly stated that as regards the locus standi of the appellant to receive the amounts under the pay orders seized, encashed and confiscated by the Customs Authorities is concerned, the issue stands concluded in favour of the assessee. However, he submitted that the decision of this Court in the case of LKP Merchant Financing Ltd. (supra) is distinguishable on facts, as in that case the amounts under the pay orders were already received by the assessee therein; whereas in the present case the amounts under the pay orders were still lying in the Bank account of the persons to whom the foreign currencies were sold by the assessee. The submission is that, so long as the pay orders are not encashed, the money under the pay orders would belong to the 7 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 8
1.CUAPP.41&43-06 purchasers of the foreign currency at whose instance the pay orders were issued and if those amounts are found to be the sale proceeds of the smuggled goods, then the customs authorities are entitled to confiscate the said amounts. Accordingly, he submitted that in the facts of the present case, the assessee is not entitled to the amount confiscated under Section 121 of the 1962 Act.
8. We have carefully considered the rival submissions. The dispute in the present case is, firstly, whether the assessee has locus standi to claim the amounts under the pay orders seized from the custody of the assessee and secondly, whether the customs authorities are justified in confiscating the amounts specified in the pay orders under Section 121 of the 1962 Act.
9. As regards the locus standi of the assessee to claim the amounts under the pay orders is concerned, the Tribunal following its decision in the case of Wall Street Finance Ltd., (supra), has held that the assessee does not have any locus standi. It is not in dispute that the decision of the Tribunal in the case of Wall Street Finance Ltd., (supra) has been overruled by this Court in O.S. Writ Petition No.493 of 2000 ( M/s. Wall Street Finance Ltd., Vs. Union of India & Ors.) decided on 25th April, 2006. Hence, the decision of the Tribunal that the assessee does not have locus standi to claim the amount under the pay orders cannot be 8 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 9
1.CUAPP.41&43-06 sustained.
10. The question then to be considered is whether the Customs authorities are justified in confiscating the amounts under the pay orders by invoking Section 121 of the 1962 Act ?.
11. In the present case, it is not in dispute that on receiving the pay orders the assessee has sold the foreign currency to the two FFMC holders having requisite licence from the RBI. The finding of fact recorded by the adjudicating authority in both the cases is that the foreign currencies were sold by the assessee to the two purchasers in the ordinary course of business and that there is nothing to suspect that the assessee had any prior knowledge that the foreign currencies sold by the assessee would be utilized for smuggling the foreign currency outside India. Thus the findings recorded by the adjudicating authority clearly show that the pay orders received by the assessee were the sale proceeds of the foreign currency sold by the assessee to the two FFMC's in the ordinary course of business without any knowledge that the amounts to be realised under the pay orders could be the sale proceeds of the smuggled goods.
12. The argument of the Revenue is that where a purchaser delivers a pay order to an assessee for purchasing the foreign currency and before the said pay order could be encashed, if it found that the pay order has 9 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 10
1.CUAPP.41&43-06 been issued out of the sale proceeds realised by the purchaser by smuggling the goods out of India, then, it is open to the customs authorities to attach bank account and confiscate the amounts in bank account of the purchaser. We see no merit in the above contention, because, once the pay orders are handed over by the purchaser to the assessee on receiving the foreign currency, then the amount under the pay order represents the sale proceeds of the foreign currency sold by the assessee. In such a case, the amounts under the pay order which represent the sale proceeds of the foreign currency sold by the assessee in the ordinary course of business cannot be attached or confiscated unless it is held that the assessee has sold the smuggled foreign currency.
In the present case, it is neither the case of the revenue that the assessee has sold the smuggled foreign currency nor it is the case of the revenue that the amounts under the pay orders in the hands of the assessee represent the sale proceeds of the smuggled goods. The fact that the persons at whose instance the pay orders have been issued had indulged in smuggling activities and the amounts in their bank accounts represented the sale proceeds of the smuggled goods cannot be a ground to deny the amount under the pay orders issued by the bank in favour of the assessee, when admittedly the pay orders were received by the assessee as sale proceeds of the foreign currency sold by the assessee in the ordinary course of business without the knowledge that the amounts 10 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 11
1.CUAPP.41&43-06 in the bank account of the purchasers represented the sale proceeds of the smuggled goods.
13. Apart of the above, confiscation under Section 121 of the 1962 Act can be made only if the conditions specified therein are fulfilled.
Section 121 of the Customs Act reads thus :
"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."
14. On plain reading of Section 121 of the 1962 Act, it is clear that the confiscation of the sale proceeds under Section 121 would be permissible, provided, firstly, there must be sale of smuggled goods , and secondly, the person selling the said goods must have knowledge or reason to believe that the goods are smuggled goods. In the present case, the finding of fact recorded by the adjudicating authority is that the foreign currencies were sold by the assessee in the normal course of the business. If the foreign currencies were sold by the assessee in the normal course of the business, then obviously it cannot be said that the assessee has sold the smuggled goods, because it was not the business of the assessee to sell smuggled goods. Moreover, in the present case, the adjudicating authority has declined to impose penalty on the assessee on 11 of 13 ::: Downloaded on - 09/06/2013 18:22:37 ::: 12
1.CUAPP.41&43-06 the ground that the assessee had no knowledge that the foreign currencies were going to be smuggled out of India and that there was no breach of the provisions of the 1962 Act committed by the assessee.
Therefore, if the assessee has neither sold the smuggled goods (foreign currencies) nor the assessee had any knowledge that the foreign currencies are going to be smuggled out of India, the question of invoking Section 121 of the 1962 Act does not arise at all.
15. In our opinion, the decision of this Court in the case of LKP Merchant Financing Ltd. (supra) would be squarely applicable to the facts of the present case. Counsel for the revenue sought to distinguish the aforesaid decision on the ground that in that case the assessee had encashed the pay orders whereas in the present case the pay orders were not encashed when the said pay orders were seized. We see no merit in the above contentions because, so long as the pay orders represent the sale proceeds of the foreign currencies sold by the assessee in the ordinary course of business and the foreign currencies sold by the assessee were not smuggled goods, the amounts under the pay orders cannot be confiscated as sale proceeds of the smuggled goods.
Therefore, irrespective of the fact as to whether the pay orders were encashed or not, so long as the amounts under the pay orders represent the sale proceeds of the legally sold foreign currencies, the question of confiscating the said sale proceeds would be wholly unjustified.
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1.CUAPP.41&43-06
16. For all the aforesaid reasons, in our opinion, the impugned order passed by the CESTAT in both the appeals cannot be sustained.
Accordingly, both the appeals are allowed by quashing the impugned orders and the respondents are directed to refund the amounts under the pay-orders with interest quantified @ 6% per annum from the date of encashment of the pay orders till payment.
17. Both the Appeals are disposed of accordingly, with no order as to costs.
(A. R. JOSHI, J.) (J. P. DEVADHAR,J.)
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