Legal principle

Where a penalty under the Customs Act, 1962 was imposed prior in time to a purported transfer, the department's first charge under Section 142A prevails over a subsequent agreement to sell, even if the transferee claims to be a bonafide purchaser for value without notice.

Court decision

The High Court (Rajan Gupta and Karamjit Singh, JJ.) dismissed the writ petition as devoid of merits and declined to interfere with the auction proceedings initiated by the department to recover the penalty from the estate of Harbhajan Singh, deciding in favour of the department.

Facts

Harbhajan Singh (since deceased), owner of M/s Royal Industries Limited, Ludhiana, was systematically evading customs duty by diverting imported goods into the local market, and a penalty was imposed on him under Section 112(b) of the Customs Act, 1962 by the competent authority in 2009 (stated as Rs.1,44,55,230/- in the department's reply and Rs.1,47,55,230/- in the court's discussion). He failed to pay the penalty, so the department attached his property (a 3-storey commercial building measuring 414 square yards at Sardar Nagar, Rahon Road, Ludhiana) and scheduled an e-auction for 15.9.2020. Meanwhile, Harbhajan Singh had on 17.12.2018 executed an agreement to sell that property to the petitioner Sanjay Jain for Rs.20 lakhs to discharge a Rs.20 lakh loan, and the petitioner had obtained a Civil Court order dated 20.2.2020 restraining alienation pending his suit for specific performance. The petitioner filed this writ petition to set aside the e-auction notice.

Key provisions

• Section 142A, Customs Act, 1962 — Liability under Act to be first charge 
• Section 112(b), Customs Act, 1962 — Penalty for improper importation of goods