Goods that are smuggled into the country can be read within the meaning of the expression ‘imported goods’ for the purpose of benefit of the exemption notification?

PJ/Case Laws/2010-11/1023

Case: Commissioner of Customs (Preventive), Mumbai v/s M/s Ambalal & Co

Citation: 2010-TIOL-111-SC-CUS

Issue:- Whether goods that are smuggled into the country can be read within the meaning of the expression ‘imported goods’ for the purpose of benefit of the exemption notification?

Brief Facts:- From the office premises of the respondent-firm large quantity of rough diamonds was recovered. Partner of respondent-firm was not able to explain satisfactorily or produce documentary evidence in relation to the import of diamonds. The diamonds were seized by the Department. Show cause notice was issued proposing confiscation of the said diamonds. The Adjudicating Authority passed the order confiscating the diamonds under Section 111(d) of the Customs Act, 1962. Option was given to the respondent to redeem the diamonds on payment of redemption fine. Respondent were also asked to pay the appropriate duty. Additionally penalty was imposed under Section 112 of the Act.

Respondent filed appeal before Tribunal. The Tribunal confirmed the redemption fine of Rs. 60 Lakhs and the penalty of Rs. Twenty-five lakhs. Aggrieved by the same, respondent filed write petition before the High Court which was withdrawn to avail the benefit of Kar Vivad Samadhan Scheme, 1998.

The designated authority directed the Respondent to pay Rs. 42 Lakhs and fifty thousand towards redemption fine and penalty and gave liberty to the respondent to redeem the seized diamonds on payment of duty.

Respondent requested the Department to release the diamonds by availing the benefit under Notification No. 247/76-Cus dated 02.08.1976. The request was turned down. The writ petition filed by respondent was dismissed by the High Court by specifically observing that the respondent had imported diamonds of foreign origin without a valid licence. Further appeal, before the Supreme Court was dismissed directing the Additional Collector of Customs (Preventive) to decide the amount of duty payable under the Customs Act in respect of seized goods.

Accordingly, the Commissioner quantified the duty payable to be Rs. 2, 20, 50, 125/-. Being aggrieved by the same, respondent filed appeal before the Tribunal. The Tribunal allowed the appeal and held that the exemption would be available to the goods imported by the respondent in the light of Notification No. 247/76-Cus. The Tribunal had held that the situation was covered by the case of Associated Cements Company v/s Commissioner of Customs [2001 (128) ELT 21 (SC)].

Against the order of the Tribunal, Revenue department has filed appeal before the Supreme Court.

Appellant’s Contentions:- Revenue contended that Benefit of exemption notification cannot be extended to a person who/which had illegally imported rough diamonds into the country. The Benefit of exemption could not be availed by those persons who did not have the licence to import diamonds, or who had smuggled rough diamonds into the country clandestinely without payment of duty.

Respondent’s Contentions:- Respondent contended that the relief was granted by the Tribunal by relying upon the principles laid down by the Supreme Court.

Reasoning of Judgment:- With regard to interpretation of the Notification the Supreme Court held that it is well settled that Notification is to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The Rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted. This composite rule is not stated in any particular judgment in so many words. In fact majority of judgments emphasize that exemptions are to be strictly interpreted while some of them insist that exemptions in fiscal Statutes are to be liberally interpreted giving an apparent impression that they are contradictory to each other. But this is only apparent. A close scrutiny reveals that the general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to 2 different sets of circumstances.

Accordingly, the language of the Notification No. 247/76-Cus, dated 02.08.1976 was held to be plain and unambiguous therefore, it was to be considered in their ordinary sense. It was held that s construction which permits one to take advantage of one’s own wrong or to impair one’s own objections under a Statute should be disregarded. The interpretation should as far as possible be beneficial in the sense that it should suppress the mischief and advance the remedy without doing violence to the language.

It was held that the benefit of exemption envisaged is for goods that are imported. The definition of ‘imported goods’ given under Section 2 (25) was required to be read alongwith Section 11, Section 111 and Section 112 of the Act. Thus, it was concluded that the goods which were smuggled or which were imported without a valid licence cannot be treated to be lawfully “imported goods” within the definition of that term in Section 2 (25).

Relying upon the judgment given in Union of India v/s Ganesh Metal Processors Industries [2003 (151) ELT 21] it was held that the goods would become exempted goods provided all the conditions of the Notification are fulfilled. If any condition of the notification is not fulfilled, the goods are not exempted goods.

On the facts of present case, it was held that the respondent were not entitled to the benefit of the said Notification.

The Apex Court held that ‘smuggled goods’ will not come within the definition of ‘imported goods’ for the purpose of the exemption notification, for the reason, the Act defines both the expressions looking at the different definitions given to the two classes of goods: imported and smuggled. If the two are to be treated as the same, then there would be no need to have two different definitions.

A conjoint reading of Section 2 (25), Section 11, Section 111 and Section 112 provided that one of the primary purposes for prohibition of import referred to the latter is the prevention of smuggling. The entire scheme of the Customs Act was examined and it was concluded that one of the principal functions of the Act was to curb the ills of smuggling on the economy. This, it was held that it would be antithetic to consider that ‘smuggled goods’ could be read within the definition of ‘imported goods’ for the purpose of the Act. This it would be contrary to the purpose of the exemption notifications to accord the benefit meant for imported goods on smuggled goods.

The Apex Court further held that the decision given in Associated Cements Company v/s Commissioner of Customs was not helpful for the respondent. In that case the issue was that whether customs duty was leviable on technical material supplied in the form of drawings, manuals and computer disc etc. another issue was that if the customs duty was leviable, how it would be valued. In that case, it was held that the import of the said goods was free and therefore, it were not chargeable to duty. But in the present case, the notification exempted certain articles when imported into India from payment of duty under the Act. The import must be valid and in accordance with the provisions of the Act.

It was further held that the High Court had reached a finding that respondent had imported diamonds of foreign origin without a valid licence and that finding had become final.

Impugned order of the Tribunal set aside for being untenable. Matter remanded for consideration of 2 other issues which were raised before the Tribunal but were not considered.

Decision:- Appeal disposed of accordingly.

Comments:- This is far reaching decision by the Apex Court.

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PJ/Case Laws/2010-11/1023

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