Legal principle

A cheque tendered without actually available funds is not 'payment' of customs duty, and a declaration of fund availability made knowing funds are unavailable is a fraudulent mis-declaration that vitiates the clearance.

Court decision

The Supreme Court allowed the Revenue's appeals, set aside the CEGAT order and restored the Commissioner's order, holding that the declaration of fund availability was a mis-declaration reflecting fraudulent motive, the demand of duty and order of confiscation were clearly sustainable, and penalties on respondents 2 to 7 (officers and departmental officials) were clearly warranted.

Facts

In 1997 M/s Essar Oil imported plant and machinery worth about Rs. 600 crores for its refinery and stored it in private bonded warehouses under a Rs. 120 crore general bond under Section 59(2) of the Customs Act. In February 1999 it filed 84 ex-bond bills of entry assessed at the then nil duty rate, and on 25.2.1999 — before the Union Budget raised basic duty from nil to 5% — it tendered a Rs. 60,03,85,603 cheque with a written declaration of 'sufficient bank balance', although funds were not actually available; the Assistant Commissioner accepted the payment and cancelled the warehousing licence without physical removal of the goods (deemed removal). The cheque was honored only on 17.3.1999 after funds were arranged, and departmental officials were found to have backdated records. The Department issued a show-cause notice proposing duty under Section 15(1)(c) alleging fraud to evade the enhanced rate; the Commissioner levied duty, confiscation and penalties on the company's officers (respondents 2-4) under Section 112 and on customs officials (respondents 5-7), rejecting their Section 155 protection. CEGAT set aside these levies and the Revenue appealed to the Supreme Court.

Key provisions

• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 111(j), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 114, Customs Act, 1962 — Penalty for attempt to export goods improperly etc