Legal principle

Even where a power exists, its exercise must be fair, reasonable and proportionate: absent even a prima facie finding that goods are liable to confiscation, conditions of provisional release securing the full value of the goods (by indemnity bond or bank guarantee) cannot be justified and the department may secure only the duty involved.

Court decision

The Court, in favour of the petitioner, quashed condition Nos. 2 and 3 of letter dated 25.7.2008 (bank guarantee of 10% of seizure value and indemnity bond equal to seizure value) and directed release of the goods on the remaining conditions (payment of differential duty and the undertaking not to challenge identity of the goods); it further directed refund to the petitioner of the deposit of Rs. 2 crores after adjusting the differential duty, without expressing any opinion on the merits, and disposed of the petition.

Facts

M/s Kundan Rice Mills imported 14 consignments of 1843 MT EVA in 2007 declaring USD 1100-1156 PMT, which the department enhanced to USD 1560 PMT; duty was paid under protest and further imports of EVA and DCP in 2008 were cleared on revised contemporaneous values. On 10.7.2008 DRI searched the petitioner's premises, after which the Managing Director deposited Rs. 2 crores (petitioner says under coercion; department says voluntarily), and goods totalling about 2833 MT were seized at the godowns and port vide Panchnamas dated 10.7.2008 to 22.7.2008. By letter dated 25.7.2008 the department offered provisional release subject to payment of differential duty of Rs.1,34,99,633 (after adjusting Rs.50 lakhs from the deposit), a bank guarantee of 10% of seizure value, an indemnity bond equal to seizure value, and an undertaking not to challenge the identity of the goods. The petitioner challenged the seizure memos, the harsh conditions, and sought refund of the balance of the Rs. 2 crores deposit; the department claimed a seizure value of Rs.40 crores and asserted the goods were liable to confiscation under section 111(m) for undervaluation.

Key provisions

• Section 110, Customs Act, 1962 — Seizure of goods, documents and things
• Rule 4(3), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Transaction value of identical goods
• Section 122, Customs Act, 1962 — Adjudication of confiscations and penalties
• Section 111, Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 126, Customs Act, 1962 — On confiscation property to vest in Central Government
• Section 125, Customs Act, 1962 — Option to pay fine in lieu of confiscation
• Section 124, Customs Act, 1962 — Issue of show cause notice before confiscation of goods etc
• Section 127, Customs Act, 1962 — Award of confiscation or penalty by customs officers not to interfere with other punishments
• Section 17(5), Customs Act, 1962 — Assessment of duty