Condition to furnish bank guarantee for amount exceeding differential duty is burdensome.

PJ/Case Laws/2012-13/1461

Case:-M/S ZEST AVIATION PVT LTD AND ANR V/S UNION OF INDIA AND ORS

Citation:- 2013-TIOL-132-HC-DEL-CUS

Brief Facts: - The petitioners filed this writ petition against the seizure memo dated 29.12.2012 issued by the respondents whereby the petitioners Aircraft - Challenger - 604-MSN-5629 (with two General Electric CF-34-3B Engines Sr. No.950423 and 950422) from Bombardier Aerospace Inc., USA – has been seized. The writ petition is also directed against the order dated 29.01.2013 issued by the respondents whereby the said Aircraft, which was seized purportedly under Section 110 of the Customs Act, 1962 by the DRI, Ahmedabad, was directed to be provisionally released under Section 110A of the said Act subject to the fulfillment of the certain conditions.
The petitioner had been issued a Non-Scheduled Operator's Permit (NSOP) and was entitled to carry on Non-Scheduled Air Transport Services. The terms of the said services have been specified in the Civil Aviation Requirement (CAR) dated 01.06.2010 issued under Rule 133A of the Aircraft Rules, 1937 by the Director General of Civil Aviation. It is the case of the petitioner that a Non-Scheduled Operator is allowed to operate revenue charter flights for a company within its group companies, subsidiary companies, sister concerns, associated companies, own employees including Chairman and members of the Board of Directors of the company and their family members, provided it is operated for remuneration, whether such service consists of a single flight or series of flights over any period of time. In other words, what the petitioner is submitting is that even employees of the petitioner-company and family members of the Board of Directors of the company can use the services of the aircraft provided the same are for remuneration. On the other hand, the respondents alleged in the seizure memo that the aircraft was being used by the promoters of the petitioner-company and not for passenger service or charter service a NSOP-holder was required to do under the Civil Aviation Rules and the conditions of the notification under which the said aircraft was imported. The said aircraft was imported by the petitioner under the Customs notification No.12/2012 and the Central Excise Notification No.12/2012. The said aircraft was imported on 4.5.2012 and the bill of entry of that date was assessed to duty and the aircraft was cleared for home consumption on payment of the concessional rate of duty of 2.5% as against the normal 3% duty that was applicable for imports of such aircrafts. The petitioner paid duty amounting to Rs. 1,67,95,428/-. According to the petitioner by virtue of the said exemption, the petitioner saved approximately Rs. 10.5 crores by way of duty. On the other hand, it is the case of the respondents that the differential duty amount was Rs 12 crores.
The decision in Navshakti Industries (supra) was not accepted by the Revenue and they filed a Special Leave Petition before the Supreme Court. Special leave was granted and the resultant Civil Appeal No.3940/2011 was disposed of by the Supreme Court.

Appellant’s Contention: - The appellant contended that this condition is extremely onerous, harsh and burdensome inasmuch as it is more than 100% of the differential duty even as per the revenue/respondents. The petitioner submitted that there are no prescribed guidelines for the amount of security that ought to be insisted upon while making a provisional release under Section 110A of the said Act. It is because of this absence of any guidelines that this Court in the case of Navshakti Industries Pvt. Ltd. vs. Commissioner of Customs: 2011 (267) ELT 483 (Del.) took recourse to the guidelines as prescribed in Regulation 2 of the Customs (Provisional Duty Assessment) Regulations, 1963 where the importer was required to execute a bond for an amount equal to the difference between the duty that may be finally assessed and the provisional duty and to deposit with the proper officer such sum not exceeding 20% of the provisional duty as the proper officer may direct. It is apparent that while the Supreme Court had required the furnishing of a bond of 20% of the differential duty, the Supreme Court had altered that condition by requiring a bank guarantee for 30% of the differential amount. The situation which obtained in Navshakti Industries Pvt. Ltd. (supra) was somewhat similar to the fact situation of the present case. In Navshakti Industries (supra) the importer had imported newsprint. The said newsprint has been cleared for home consumption on payment of the requisite duty. It is only subsequently that it was alleged that there was a violation of the import conditions and, therefore, the said newsprint was made the subject matter of a seizure. It is thereafter that a conditional release order was passed and it is those conditions which were objected to by the importers. The High Court had, as already mentioned above, required the importer to, inter alia, furnish a bond of 20% of the differential duty for the release of the goods. That condition was enhanced by the Supreme Court by requiring a bank guarantee for 30% of the differential duty amount. The petitioner submitted that, at best, the Revenue could ask for a bank guarantee of 30% of the differential duty amount. He submitted that the requirement of furnishing bank guarantee of `16 crores, which was approximately 130% of the alleged differential duty amount, was clearly arbitrary as it was harsh, burdensome and onerous.

Respondent’s Contention: - The respondent contended that it was well within their rights to require the furnishing of a bond as also a security while directing provisional release of goods under Section 110A of the said Act. It was also contended that the Bombay High Court in Apollo Cranes (P) Ltd. vs. Union of India: 2012 (275) ELT 148 (Bom.) =(2011-TIOL-906-HC-MUM-CUS) had taken a different view and had sought to distinguish the case of Navshakti Industries (supra) as decided by this Court.

Reasoning of Judgment: - The Hon’ble High Court held that as no show cause notice has been issued to the petitioner. According to the respondents, the show cause notice would be issued in due course. That being the position, the issue as to whether the petitioner contravened any conditions of the exemption claimed by it would be adjudicated upon by the adjudicating authority and they do not wish to enter into that arena of controversy. The limited point that is to decide is whether the conditions imposed under the provisional release order dated 29.01.2013 are reasonable or are they too harsh and burdensome on the petitioner. If they go back to the conditions which have been imposed by the provisional release order of 29.1.2013, they find that the petitioner has been required to execute a bond for the provisional release of the aircraft for the sum of 70 crores. According to the petitioner, the value of the aircraft is approximately Rs. 67 crores whereas according to the respondents, the market value of the aircraft is 70 crores and that is why the bond for the said amount of Rs. 70 crores has been insisted upon by therespondents. The learned counsel for the petitioner submitted at the outset that he is not challenging this condition and that he is willing to execute the bond for the sum of Rs. 70 crores as required by the provisional release order dated 29.01.2013. The actual grievance is with regard to the condition which requires the petitioner to provide security in the form of a bank guarantee for a sum of Rs. 16 crores. Further they held that they have gone through the decision of the Bombay High Court in the case of Apollo Cranes Pvt. Ltd. (supra). They may point out straightaway that the said decision has been rendered without noticing the decision of the Supreme Court in Navshakti Industries (supra) which was rendered on 4.5.2011. Moreover, the decision of the Bombay High Court, with respect, appears to have misread the decision of this Court in Navshakti Industries (supra). What this Court said was there was no prescribed procedure or guidelines for imposing conditions with regard to the furnishing of a security and, therefore, as a fall back measure they had adopted Regulation 2 of the Customs (Provisional Duty Assessment) Regulations, 1963. This Court in Navshakti Industries (supra) has not applied the said regulations as such because that was not a case of provisional assessment under Section 18. This Court had only applied the analogy of the said regulation in the absence of any other guidelines under Section 110A of the said Act. Therefore, to that extent also, we feel that Bombay High Court decision in Apollo Cranes (supra) would be of no use to the respondents.
Having considered the arguments advanced by the parties and having examined the matter at some length, they are of the view that the condition of furnishing a bank guarantee in the sum of Rs.16 crores is clearly harsh and burdensome being far in excess of even the differential duty amount as computed by the respondents. Therefore, that condition has to go. However, a reasonable condition may be imposed. In the case of Navshakti Industries (supra) the Supreme Court imposed the condition of furnishing a bank guarantee to the extent of 30% of the differential duty. They feel that such a condition would be appropriate in the present case also. Consequently, this writ petition is disposed of with the direction that the petitioner would be entitled to seek release of the Aircraft in question under section 110A of the said Act on executing a bond for a sum of Rs. 70 crores and, in addition, on providing a security in the form of a bank guarantee for the sum of Rs. 3.6 crores (being 30% of the alleged differential duty amount of Rs. 12 crores). The bank guarantee may, of course, contain a clause undertaking the self renewal of the same till the final disposal of the case by the Customs. The petitioner shall execute the said bond and furnish the bank guarantee within one week. On furnishing the said bond and the bank guarantee to the satisfaction of the concerned Commissioner, the Aircraft shall be provisionally released to the petitioner forthwith.

Decision: - Writ petition disposed of.

Comment:-The analogy drawn from this case is that the condition for provisional release of seized goods cannot require the assessee to execute the bond for the value of goods along with furnishing of bank guarantee exceeding the amount of differential duty and is certainly harsh and burdensome.

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PJ/Case Laws/2012-13/1461

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