1996 (8) TMI 108 - SC - Customs

Show-cause notices under Sections 28 and 124 valid; fraudulent Section 47 clearance doesn't bar confiscation proceedings under Section 124

The SC allowed the appeal, set aside the HC's judgment and held that show-cause notices under Sections 28 and 124 were valid. Where stainless steel ... Validity of show cause notices under Sections 28 and 124 - imported RBD palm oil - Whether the said oil had been imported in containers made of stainless steel, which was a banned item, but which had been painted over to give the impression that they were made of mild steel? Held that:- The case of the appellants in the show cause notices is that the stainless steel containers in which the said oil was imported were banned, that the stainless steel containers were deliberately camouflaged by painting them to resemble mild steel containers, and that this was done with a view to enabling their clearance. A clearance order under Section 47 obtained by fraudulent means such as this (if it, in fact, be so) cannot debar the issuance of a show-cause notice for confiscation of goods under Section 124. Fraud, if established, unravels all. An order under Section 47 obtained by the employment of fraudulent methods does not have to be set aside by the exercise of revisional powers under Section 130 before the ill-effects of the fraud can be set right by initiation of the process of confiscation of the fraudulently cleared goods under Section 124. The High Court noticed that the appellants' allegation was that the stainless steel containers were painted over to suppress their true nature, but it took the view that the respondents were not required to disclose the nature or price of containers. We do think that the High Court ought to have taken some note of the significance of painting of stainless steel. If the stainless steel containers were painted, and so painted as to resemble mild steel containers, there can be little doubt that the intention was to slip them through the Customs. Certainly, the High Court ought not to have entered into the thicket of evidence. Evidence was something for the authorities hearing the parties under Sections 28 and 124 to accept and weigh. We do not approve of stultifying, in exercise of powers under Article 226, an investigation, still at the show-cause stage, by going into facts. Also the High Court in any event, ought not to have allowed the writ petition without reserving liberty to the appellants to proceed against the respondents under Section 130 which, as the High Court looked at it, was the appropriate course of action.The appeal is allowed. The judgment and order of the High Court is set aside. Issues:1. Validity of show cause notices under Sections 28 and 124 of the Customs Act.2. Interpretation of Sections 47, 28, and 124 of the Customs Act.3. Consideration of fraudulent practices in obtaining clearance orders.4. Scope of evidence and investigation at the show-cause stage.5. Applicability of Article 226 in allowing writ petitions.Analysis:The judgment by the Supreme Court involved a case where the 1st respondents imported RBD palm oil in stainless steel containers, which were later alleged to be banned items painted over to resemble mild steel. The respondents challenged the show cause notices issued under Sections 28 and 124 of the Customs Act through a writ petition in the Delhi High Court, which was initially allowed but later set aside for a fresh hearing. The High Court based its decision on modern marketing practices requiring the use of stainless steel containers for refined oil movement and emphasized Section 47, stating that clearance for home consumption had been given, thus no show cause notices could be issued without revising the order under Section 47.The Supreme Court clarified that a show cause notice under Section 28 for duty payment can only be issued after clearance under Section 47, with time limits starting from the date of the clearance order. The Court highlighted that fraudulent practices in obtaining clearance do not prevent the initiation of confiscation proceedings under Section 124, emphasizing that fraud, if proven, overrides any clearance order obtained through deceit. The Court stressed that the respondents should have an opportunity to defend against the allegations before any decision on confiscation or penalty is made.Regarding evidence and investigation, the Court criticized the High Court for delving into factual matters best left for authorities under Sections 28 and 124 to assess. The Court disapproved of stifling investigations at the show-cause stage through Article 226 powers. Additionally, the Court noted that the High Court should have reserved the right for authorities to proceed under Section 130 against the respondents, rather than allowing the writ petition outright.In conclusion, the Supreme Court allowed the appeal, setting aside the High Court's judgment, dismissing the writ petition, and directing the continuation of proceedings under Sections 28 and 124. The Court ordered the maintenance of seizure on the stainless steel containers pending adjudication, with no costs awarded. The judgment emphasized that the observations made by the Court or the High Court should not influence the authorities handling the show cause notices.