2023 (9) TMI 420 - AT - Customs

Tribunal Overturns Confiscation Order; Allows Labeling for Industrial Use Goods, Considers Waiver of Demurrage Charges.

M/s Ashwith Trade Links and Service Versus Commissioner of Customs, Cochin

M/s Ashwith Trade Links and Service Versus Commissioner of Customs, Cochin - 2023 (386) E.L.T. 891 (Tri. - Bang.) ISSUES PRESENTED AND CONSIDERED 1. Whether imported packaged commodities that are sold to industrial or institutional consumers are exempt from the labelling requirements of the Legal Metrology (Packaged Commodities) Rules, 2011 and, if so, what proof is required at time of import to avail that exemption. 2. Whether failure to comply with labelling requirements at importation (absence of 'not for retail sale' declaration on pre-packed goods) justifies absolute confiscation under the Customs Act, 1962 and imposition of penalty under Section 112. 3. Whether the importer's post-import undertaking or willingness to affix 'not for retail sale' labels and prior evidence of industrial customers suffices to avoid confiscation and to permit release of the goods on compliance, including whether the adjudicating authority should have allowed affixation prior to clearance. 4. Whether, in circumstances where diversion to local retail sale is a concern, release on execution of bond or other conditional mechanisms should have been offered instead of confiscation. 5. Whether the adjudicating authority ought to consider refund/waiver of demurrage/storage charges or issue a detention certificate where goods have been detained for labelling non-compliance and the appellate authority had not addressed that relief. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Legal Metrology (Packaged Commodities) Rules, 2011 to imported goods destined for industrial/institutional consumers and standard of proof at import Legal framework: Rule 3 of the Legal Metrology (Packaged Commodities) Rules, 2011 exempts packaged commodities meant for industrial or institutional consumers from the Rules' labelling requirements; Section 2(bb) defines 'institutional consumer' and contemplates that the package shall have declaration 'not for retail sale' where applicable. Precedent treatment: The adjudication authority acknowledged the exemption where goods are meant for industrial consumers but required documentary proof linking the specific import consignment to industrial customers; the Tribunal reviewed that factual approach. Interpretation and reasoning: The Court interpreted Rule 3 as exempting goods meant for industrial/institutional consumers from labelling requirements, subject to the statutory definition. Once the adjudicating authority is satisfied generally that the importer's clientele are industrial users (including on past import records and customer invoices), it is not open to insist on fresh documentary proof at clearance for each consignment unless there is reason to suspect diversion to retail sale. The Tribunal emphasized that evidence of prior sales to printing/industrial customers and registrations (GST, MSME) constituted sufficient evidence that goods are not intended for retail packaging and therefore fall within the exemption. Ratio vs. Obiter: Ratio - the exemption under Rule 3 applies where imported packaged commodities are meant for industrial/institutional consumers and prior satisfactory evidence of the importer's industrial customer base suffices at the adjudication stage; fresh proof for each import is not mandatory absent suspicious circumstances. Obiter - comments on detailed administrative practice for evidence at ports. Conclusion: The exemption under Rule 3 applies to the imported goods in question; the adjudicating authority's denial of exemption for lack of contemporaneous proof was factually unsustainable given earlier evidence of industrial customers. Issue 2 - Confiscation and penalty for labelling non-compliance: scope and limits of absolute confiscation under customs law Legal framework: Confiscation and penalty provisions under the Customs Act, 1962 (including Section 112 for penalty) are penal in nature and must be strictly construed; confiscation is an extreme remedy. Precedent treatment: The Court referred to Supreme Court authority holding that statutes conferring confiscation must be read strictly and cannot be extended by implication, and that conditions imposed by statute may make goods prohibited if not complied with, but confiscation powers cannot be expansively invoked where non-compliance is procedural and remediable. Interpretation and reasoning: The Tribunal held that absolute confiscation was not justified where non-compliance consisted of absence of a 'not for retail sale' label on goods that are otherwise destined for industrial use and where the importer offered to rectify the defect before clearance. The Court reasoned that confiscation is disproportionate where a remedial opportunity (affixing label) or conditional release (bond) could prevent diversion and satisfy statutory aims. It further noted that if the authority suspected possible diversion, the correct administrative response would have been to clear on bond or allow affixation prior to release rather than confiscate. Ratio vs. Obiter: Ratio - absolute confiscation and imposition of penalty are not appropriate responses to remediable labelling non-compliance on goods established to be for industrial consumers; remedial measures (affixation, bond, conditional release) should be considered. Obiter - broader remarks on comparative cases involving contraband or per se prohibitions where confiscation may be appropriate. Conclusion: Confiscation and penalty were set aside as disproportionate and legally unsustainable in the facts presented; remedial compliance was ordered as the appropriate course. Issue 3 - Sufficiency of post-clearance undertakings and opportunity to cure labelling defect; duty to permit compliance prior to release Legal framework: Regulatory scheme contemplates compliance with labelling rules; administrative authorities empowered to act when sale occurs without proper packaging, but procedural fairness and proportionality require opportunity to cure non-compliance where feasible. Precedent treatment: The adjudication and first appellate authorities declined to accept the importer's offer to affix 'not for retail sale' labels post-import and proceeded to confiscation; Tribunal contrasted that approach with legal principles advocating strict construction of confiscation powers and remedial measures. Interpretation and reasoning: The Tribunal found it procedurally improper for the adjudicating authority to refuse an opportunity to affix labels when the importer expressly offered compliance before release. The Court reasoned that if the nature of the goods and the importer's clientele were established, the correct administrative response was to permit affixation prior to release or clear on bond where diversion was a concern. The Tribunal also observed that different authorities under the Legal Metrology Act may deal with post-sale compliance, but that did not justify denying an opportunity to cure at the customs clearance stage. Ratio vs. Obiter: Ratio - an importer willing to comply by affixing the required 'not for retail sale' declaration should be afforded an opportunity to do so before confiscation; authorities must consider conditional release mechanisms. Obiter - procedural interaction between customs authorities and legal metrology authorities. Conclusion: The importer's willingness to affix labels and existing evidence of industrial customers required the authority to allow affixation and release upon verification rather than confiscate. Issue 4 - Appropriate administrative measures where risk of diversion exists (bond/conditional release) instead of confiscation Legal framework: Customs law permits conditional mechanisms to guard against diversion; confiscation is a last resort. Precedent treatment: The Tribunal noted that if the adjudication authority had reasons to believe diversion was possible, it could have cleared the goods on execution of a bond; no such measures were taken. Interpretation and reasoning: The Court reasoned that clearance on bond or similar conditional mechanisms balance risk-management and rights of the importer, avoiding penal consequences where non-compliance is remediable and intent to divert is not established. Ratio vs. Obiter: Ratio - where diversion is a potential concern, authorities should consider bonds/conditional release rather than immediate confiscation. Obiter - none beyond administrative suggestions. Conclusion: The adjudicating authority erred in failing to offer or impose conditional release measures when concerns about diversion could have been addressed by bond or affixation. Issue 5 - Consideration of detention certificate and waiver of demurrage/storage charges Legal framework: Regulations governing Handling of Cargo in Customs Areas allow consideration of waiver of demurrage/storage charges; detention certificates may be issued where goods are detained. Precedent treatment: The adjudication and appellate orders did not address the importer's request for waiver or detention certificate; the Tribunal directed the respondent to consider the request in accordance with the applicable regulation. Interpretation and reasoning: The Tribunal held that because the adjudicating authority did not consider the waiver request, the respondent must now reconsider the request (letter dated 23.11.2022) under Regulation 6(1)(i) of the Handling of Cargo in Customs Area Regulations, 2009 and issue an appropriate order. Ratio vs. Obiter: Ratio - administrative reliefs such as waiver of demurrage/storage charges should be considered on their merits when detention arises from procedural non-compliance that the importer is willing and able to cure. Obiter - none beyond direction to consider the request. Conclusion: The matter of waiver/issue of detention certificate was remitted for consideration; Tribunal directed respondent to decide the request under the cited regulation.