Customs authorities cannot impose compounding penalty above 5% upper cap limit prescribed in Circular No.27 of 2015

HC held that customs authorities exceeded their power when imposing compounding penalty above the 5% upper cap limit prescribed in Circular No.27 of 2015. The case involved smuggling of 247 boxes of prescription drugs exported without proper clearance and statutory formalities. The court found the compounding rate unjustified and modified the penalty to comply with the mandatory 5% limit, ruling that authorities lacked power to exceed this ceiling despite the serious nature of the customs violation.

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Issues Involved:
1. Legality of the actions by Respondent No. 3 and Respondent No. 4.
2. Validity of the compounding order and the prosecution proceedings.
3. Determination of the compounding amount.

Summary:

Issue 1: Legality of Actions by Respondent No. 3 and Respondent No. 4
The petitioner challenged the actions of Respondent No. 3 in issuing C.No.I/10/29/2020-Pors, Dated 07.2023, and Respondent No. 4 in passing compounding order No. 4 of 2023 dated 12.09.2023. The petitioner claimed these actions were "illegal, arbitrary, unconstitutional and infringing art 14, 19, 20, 21 of Constitution of India." The facts revealed that the petitioner was involved in smuggling high-value Hepatitis C medicines without the necessary licenses, leading to the confiscation of 247 boxes of prescription drugs valued at Rs. 53,45,000/-. The Order-in-Original on 28.04.2017 confirmed the confiscation and imposed penalties. This order was upheld by the first Appellate Authority on 28.02.2018 and later partially modified by the Tribunal on 06.09.2023, reducing the value of goods and penalties.

Issue 2: Validity of the Compounding Order and Prosecution Proceedings
The petitioner, after receiving a prosecution notice under Section 135(1)(b) of the Customs Act, 1962, filed an application for compounding the offense. The application was accepted, and the compounding order dated 12.09.2023 required the petitioner to pay Rs. 5,34,500/-. The petitioner later challenged this order, arguing that the compounding amount was contrary to guidelines. The court noted that the petitioner had voluntarily sought compounding and was estopped from challenging it. The court cited the High Court of Delhi's judgment in Vikram Singh Versus Union of India, emphasizing that a petitioner cannot challenge compounding charges after voluntarily agreeing to them.

Issue 3: Determination of the Compounding Amount
The court found that the compounding amount should adhere to the guidelines in Circular No. 27 of 2015, which caps the compounding amount at 5% of the market value of the goods. The court held that the rate at which the compounding amount was finalized was not proper and modified it to comply with the 5% cap. The court concluded that there was no strong case for interfering with the prosecution notice or the compounding order and rejected the writ petition, with no order as to costs.

Conclusion:
The court upheld the legality of the actions by Respondent No. 3 and Respondent No. 4, validated the prosecution proceedings and compounding order, but modified the compounding amount to adhere to the 5% cap as per Circular No. 27 of 2015. The writ petition was rejected.

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