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PETITIONER: SHESHANK SEA FOODS PVT. LTD.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       19/11/1996

BENCH: S.P. BHARUCHA, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T BHARUCHA, J.      The principal  judgment was  delivered  by  a  Division Bench of  the High  Court of  Karnataka in  the case of M/s. Kamath Packaging  Limited (Civil Appeal No. 1153/92). In the other  matters   the  High   Court  followed  the  aforesaid judgment.      A writ petition was filed by M/s. Kamath Packaging Ltd. before  the   High  Court  seeking  a  writ  or  prohibition restraining the  Customs authorities  from  proceeding  with search and  seizure operations  in their  premises. The writ petition was  dismissed by  a learned  single Judge  and the appeal therefrom  by the  Division Bench.  The writ petition was filed upon the basis that the Customs authorities had no right or  authority nor  did the  Customs Act, 1962, empower them to go into questions relating to the utilization of the raw materials that had been imported by the appellants under advance incences  granted to  them under  the Duty Exemption Scheme. It  was the case of the Customs authorities that the raw materials  had been  imported by  the appellants without payment of  duty by  availing of the benefit of an Exemption Notification dated  30th April,  1988  (No.  116/1988).  The terms and  conditions  thereof  had  been  violated  by  the appellants. Search  and seizure  operations in  this  behalf were, therefore, within their powers.      The said  Exemption Notification was issued in exercise of powers  conferred by Section 25(1) of the Customs Act and one  of  the  conditions  thereof  was  that  the  materials exempted thereunder  would not "be sold, loaned, transferred or disposed of in any other manner".      Learned counsel  for the  appellant submitted  that the investigation by  the Customs  authorities was in respect of alleged violations  of the  terms of the appellants’ advance licences which  incorporated the terms of the said Exemption Notification.  Only   the  licensing   authority   had   the jurisdiction to investigate the alleged violations. The Duty Exemption Scheme  under which  the licences  had been issued was a  code by  itself and exceeded any investigation by the Customs authorities. The bond that had been furnished by the appellants pursuant to the licences also provided for action

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by the licensing authority.      Our Attention  was drawn  by learned  counsel  for  the appellant in  support of  his aforestated submissions to the Import and Export Policy, 1988-91, wherein Chapter XIX dealt with the  Duty Exemption  Scheme. Paragraph  291 stated that the licence  holder should,  before ciearance  of the  first consignment of  import, execute  a bond  with the  requisite value of  bank guarantee  or legal  undertaking, as the case may be,  with  the  concerned  licensing  authority  in  the prescribed form, Paragraph graph 243 read thus:      "If  licences   holder   fails   to      discharge  the   prescribed  export      obligation  within   the  permitted      time, the licensing authority shall      initiate   action    against    the      licence-holder   on    the    lines      indicated in  Chapter  XIX  of  the      Hand Book  of Procedures,  1988-91.      This  shall,  however,  be  without      prejudice to  any other action that      may be  initiated  by  the  Customs      authorities for recovery of Customs      duty or  other duties  and interest      thereon under  Section 142  of  the      Customs Act, 1962."      Learned counsel  drew attention  to the  Hand  Book  of Procedures, April  1988 - March 1991, issued by the Ministry of Commerce,  Government of  India, Chapter XIX whereof also dealt with  the Duty  Exemption Scheme.  Paragraph 374 dealt with  the  consequences  of  a  licence  holder  failing  to discharge the prescribed export obligation either in full or in part.  If this  happened in  such circumstance  that "the licensing authority  is satisfied  that the  exempt material has not  been sold  or misutilised  for domestic production" the action  that could  be taken  was set  out.  In  learned counsels submission, these provisions of the Import & Export Policy and  the Hand  Book of  Procedures showed that is was only the licensing authority which could investigate alleged cases  of   domestic  sale   of  exempt   material  and  the jurisdiction of the Customs authorities to do so was ousted.      Learned counsel placed reliance upon a communication to all Collectors of Central Excise issued by the central Board of Excise  & Customs  on 13th  May, 1969,  or the subject of whether, in  the event  of  the  contravention  of  a  post- importation condition  of an  import licence, it was open to the Customs  authorities the confiscate imported goods under Section 111  (O) of  the Customs Act. The said communication stated that  before Section 111 (o) could be attracted there had "to  be an  exemption, subject  to a  condition, from  a prohibition. Where  a valid  licence has  been issued, it is not a  case of an exemption from the prohibition. Therefore, if a post importation condition of a licence is contravened, it cannot  be  said  that  any  condition  of  exemption  is contravened.      For the  reasons stated above, the Ministry of Law have advised that  it may  not be  possible to  take action under Section 111  (o) with  respect  to  the  conditions  of  the licence relating  to the use of goods after they are cleared from the Customs charge."      Section 111 (o) is the sheet-anchor of the respondents’ case. It reads thus:      "111.  Confiscation  of  improperly      imported   goods.    etc.   -   The      following  goods   brought  from  a      place outside India shall be liable

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    to confiscation -      XXX            XXX            XXX      (o) any  goods exempted, subject to      any condition,  from  duty  or  any      prohibition  in   respect  of   the      import thereof  under this  Act  or      any other law for the time being in      force,  in  respect  of  which  the      condition is  not  observed  unless      the non-observance of the condition      was  sanctioned   by   the   proper      officer."      Section 111  (o) states  that when  goods are  exempted from Customs  duty subject  to a condition and the condition is not  observed, the  goods are liable to confiscation. The case of  the respondents  is that  the goods imported by the appellants, which  availed of  the said exemption subject to the  condition   that  they   would  not  be  sold,  loaned, transferred or  disposed of  in any  other manner,  had been disposed of  by the  appellants.  The  Customs  authorities, therefore, clearly  had the  power to  take action under the provisions of Section 111 (o).      We do  not find  in the  provisions of  the Import  and Export Policy  or the  Hand Book of Procedures issued by the Ministry of  Commerce, Government  of India,  anything  that even remotely  suggests that  the  aforesaid  power  of  the Customs authorities  had been taken away or abridged or that an investigation into such alleged breach could be conducted only  by   the  licensing   authority.  That  the  licensing authority is  empowered conduct  such an  investigation does not by  itself preclude  the Customs  authorities from doing so.      The communication  of the  Central Board  of Excise and Customs dated  13th May,  1969, refers  to the breach of the condition of  a license  and suggests  that it  may  not  be possible to  take action  under Section  111 (o)  in respect thereof. It  is true  that the  terms or  the said Exemption Notification were made part of the appellants’ licences and, in that  sense, a  breach of the terms of the said Exemption Notification is  also a  breach of the terms of the license, entitling the  licensing authority  to investigate.  But the breach is not only of the terms of the license; it is also a breach of  the condition  in the Exemption Notification upon which the  appellants obtained  exemption  from  payment  of Customs duty  and, therefore,  the terms  of Section 111 (o) enable the Customs authorities to investigate.      For these  reasons, we find no merit in the appeals and dismiss them with costs.