Legal principle

A show cause notice will not be quashed in writ jurisdiction except in rare and exceptional cases where it is wholly without jurisdiction or wholly illegal, and under Section 151B(5) of the Customs Act, 1962 a Customs Mutual Assistance agreement between sovereign States prevails over the SAFTA/ISFTA Rules for verification of Certificates of Origin.

Court decision

The Court dismissed W.P.No.15575 of 2019, declining to quash the impugned SCN, holding it was not a rare and exceptional case warranting interference under Article 226 (following Union of India v. Kunisetty Satyanarayana, (2006) 12 SCC 28). It held that the India–Sri Lanka CMA agreement dated 13.03.2015, being an arrangement between two sovereign States deemed valid under Section 151B(5) of the Customs Act (inserted retrospectively by the Finance Act, 2018), prevails over and substitutes the SAFTA and ISFTA Rules for verification of COOs. However, it granted the importer protective directions: respondents 1 and 2 were permitted (without being compelled) to issue an addendum/corrigendum to the SCN within a fortnight, adverting to the CMA agreement and explaining how the COOs were verified and why they are unacceptable, without disclosing the privileged communications; failing which the petitioner could raise this issue in its reply to the SCN. No order as to costs.

Facts

M/s Unik Traders, a Bangalore-based importer of spices, condiments and betel nuts, imported 45 consignments in 90 containers (44 arecanut consignments in 88 containers and 1 black pepper consignment in 2 containers) in October–November 2018, claiming concessional duty under SAFTA and ISFTA on the basis that the goods originated from Sri Lanka, supported by Certificates of Origin (COOs). The Directorate of Revenue Intelligence doubted the COOs and seized the consignments vide seizure memorandum dated 01.12.2018. Seizure litigation ran through the Single Judge, Division Bench (which ruled for Revenue) and the Supreme Court, which on 08.05.2019 permitted the importer to assail any show cause notice before the High Court. Meanwhile DRI issued a show cause notice dated 05.05.2019 (F.No.DRI/CZU/VIII/48/ENQ-I/INT-36/2018), which the importer challenged in this writ petition, also seeking verification of the SAFTA/ISFTA certificates, release on a simple bond, and a detention certificate for waiver of demurrage/container detention charges under Regulation 6(1)(l) of the Handling of Cargo in Customs Areas Regulations, 2009.

Key provisions

• Section 5(1), Customs Tariff Act, 1975 — Levy of a lower rate of duty under a trade agreement
• Section 151B, Customs Act, 1962 — Reciprocal arrangement for exchange of information facilitating trade
• Section 124, Customs Act, 1962 — Issue of show cause notice before confiscation of goods etc
• Regulation 6(1)(l), Handling of Cargo in Customs Areas Regulations, 2009 — Responsibilities of Customs Cargo Service provider