2013 (3) TMI 29 - HC - Customs

Court quashes show-cause notice, denies duty remission. Petitioners' claim rejected for customs duty payment.

RAJ EXPORTS Versus CENTRAL WAREHOUSING CORP.

RAJ EXPORTS Versus CENTRAL WAREHOUSING CORP. - 2013 (287) E.L.T. 166 (Guj.) Issues Involved:1. Entitlement to duty remission under Section 23 of the Customs Act.2. Validity of the show-cause notice dated 12-4-2011.3. Liability of the Central Warehousing Corporation (CWC) and the insurance company to pay customs duty.Issue-wise Detailed Analysis:1. Entitlement to Duty Remission under Section 23 of the Customs Act:The petitioners argued that they were entitled to a duty remission certificate from the customs authorities as the goods were destroyed before clearance for home consumption due to a cyclone. They relied on Section 23 of the Customs Act, which provides for remission of duty on lost or destroyed goods before clearance.The court examined the statutory provisions and noted that Section 23(1) mandates remission of duty if goods are lost or destroyed before clearance for home consumption. However, this provision must be read in conjunction with other relevant sections, particularly Section 72, which deals with the collection of duty under circumstances other than regular clearance. The court found that the petitioners' liability to pay duty had crystallized under Section 72(1)(b) because the goods were not removed from the warehouse within the permitted period. Consequently, the destruction of the goods after the duty liability had crystallized did not alter the situation, and the petitioners were not entitled to remission under Section 23.2. Validity of the Show-Cause Notice Dated 12-4-2011:The petitioners contended that the show-cause notice was vague, inspecific, and issued after an unreasonable delay. They argued that the notice did not compute the duty demand or provide reasons for the demand and that it was issued well beyond the reasonable period for recovery of unpaid duty.The court agreed with the petitioners, noting that the Customs Department had not taken any steps to recover the duty for nearly four years before the petition was filed. Even after the petition was filed, there was no stay against the issuance of a show-cause notice or recovery of duty, yet the department remained inactive for over ten years. The court held that the notice was hopelessly belated and must fail on this ground. Additionally, the court found the notice vague and general, lacking specific details and computation of the duty amount.3. Liability of the Central Warehousing Corporation (CWC) and the Insurance Company to Pay Customs Duty:The petitioners argued that the CWC and the insurance company should pay any duty liability as the goods were insured for their value and duty. They claimed that the CWC had received the insurance amount but did not release it due to warehousing dues.The court rejected this contention for several reasons:1. The duty liability had not yet been determined, making the petitioners' claim premature.2. The claim arose from a contractual relationship between the petitioners and the CWC, with no privity of contract between the petitioners and the insurance company. Such a claim could not be enforced through a writ petition.3. The insurance company was entitled to raise objections and defenses based on the terms of the insurance policy, which could not be adjudicated in a writ petition.Conclusion:The court quashed the impugned show-cause notice primarily on the ground of unreasonable delay in issuing the notice. The petition was allowed to this extent, and the rule was made absolute with no costs.