2024 (9) TMI 716 - HC - Customs

Customs detention of platinum alloy sheets quashed for lack of recorded reasons and improper bank guarantee demand

Delhi HC allowed petition challenging detention of platinum alloy sheets consignment. Court held that impugned orders failed to record reasons for ... Recorded reasons for formation of opinion - verification of Certificate of Origin under trade agreements - suspension of preferential tariff treatment pending verification - provisional assessment and security under Section 18 - CAROTAR and CEPA Rules verification procedure - prohibition against mechanical imposition of bank guarantees - requirement to specify grounds when seeking verificationRecorded reasons for formation of opinion - requirement to specify grounds when seeking verification - Detention of imported goods pending verification of the Certificate of Origin is invalid where the proper officer records no reasons or material forming a belief or reasonable suspicion. - HELD THAT: - The Court held that the statutory scheme governing preferential tariff claims contemplates that any decision to suspend preferential treatment or detain goods must be preceded by a justiciable formation of opinion grounded in material. The impugned orders recorded only that an investigation had concluded and advised assessment under PD bond and bank guarantee, but contained no reasons indicating why the COO or origin criteria were doubted, nor any of the contingencies specified in CAROTAR/CEPA. The absence of even a succinct statement of the factors that weighed upon the proper officer rendered the detention arbitrary and unsustainable. The Court emphasised that reasons are required both by the statutory scheme and by principles of fairness and Article 14, and that portal/space constraints do not excuse failure to record the gist of reasons. [Paras 34, 35, 36, 37, 38]Impugned detention quashed as liable to be set aside for failure to record reasons; detention unsustainable.Verification of Certificate of Origin under trade agreements - CAROTAR and CEPA Rules verification procedure - requirement to specify grounds when seeking verification - Proper procedure under CAROTAR and CEPA Rules must be followed for verification of COO and the Customs Administration must specify the nature and grounds of the verification request. - HELD THAT: - The Court summarised the statutory and rule-based scheme: Section 28DA empowers enquiries where the proper officer has reasons to believe COO criteria are unmet; CAROTAR (Rules 3, 5, 6) and CEPA Rules (Rules 22-24, 26) prescribe when information may be requisitioned, timelines, grounds for random or suspicion-based verification, and reciprocal verification steps with the exporting Party. Initiation of verification must specify whether it is to rule out forgery, to elicit minimum information or to verify determination of origin; the importing authority must inform the issuing authority of reasons and seek specified information. The impugned orders neither invoked nor recorded any of these procedural preconditions, nor was there evidence of reciprocal verification having been initiated. [Paras 26, 30, 31, 32, 33]Failure to follow CAROTAR/CEPA verification procedure rendered the impugned action legally unsustainable.Provisional assessment and security under Section 18 - prohibition against mechanical imposition of bank guarantees - The demand for a PD bond of 100% of assessable value and a bank guarantee for differential duty was improperly imposed without invoking the Section 18 contingencies or recording justifying reasons; mechanical application of Guidelines was unsustainable. - HELD THAT: - The Court examined Section 18 which permits provisional assessment where specified contingencies arise (chemical tests, further enquiry, missing documents/information). It found no articulation in the impugned orders as to which clause of Section 18(1) justified provisional assessment. The respondents relied on CBEC Guidelines, but the Court noted that Guidelines cannot justify blanket or mechanical imposition of onerous security requirements and referred to precedent holding certain circulars ultra vires Section 151A. The orders also failed to consider that random verifications do not justify demanding bank guarantees under the Guidelines. Thus the requirement of PD bond and bank guarantee was imposed without lawful basis. [Paras 42, 43, 44, 45, 46]Requirement of PD bond and bank guarantee set aside as mechanically imposed and unsupported by reasons or applicable provisions of Section 18.Provisional assessment and security under Section 18 - suspension of preferential tariff treatment pending verification - Where preferential tariff treatment is suspended, the importer may seek release on furnishing security equal to the differential duty; however such provisional release conditions must conform to the statute and Rules and cannot be imposed arbitrarily. - HELD THAT: - The Court recognised that Section 28DA(5) and CAROTAR/CEPA permit provisional release subject to provision of security equal to the difference between provisional and claimed preferential duty. Nonetheless, the Court stressed that imposition of such conditions must be grounded in the statutory preconditions for suspension and the verification procedure, and not by routine application of CBEC Guidelines or without recorded reasons. Random selection under rules negates justification for onerous security demands. [Paras 8, 23, 24, 31, 45]Provisional release subject to security is allowable in law but was not lawfully applied in the facts; conditions imposed must be justified and recorded.Recorded reasons for formation of opinion - verification of Certificate of Origin under trade agreements - Direction to reconsider release of goods after lawful application of verification procedure and recording of reasons. - HELD THAT: - Given the defects in the orders-absence of recorded reasons, failure to follow CAROTAR/CEPA verification steps, and mechanical imposition of security-the Court quashed the impugned orders and directed the respondents to reconsider release of the imported articles with due expedition, applying the correct statutory and rule-based processes and bearing in mind the prohibition on imposing onerous conditions without justification. The Court cautioned the proper officer to heed earlier judicial observations regarding imposition of onerous conditions. [Paras 39, 41, 49]Impugned orders quashed; respondents directed to reconsider release in accordance with law and with expedition.Final Conclusion: Writ petitions allowed; impugned orders dated 31 July 2024 quashed. Respondents directed to reconsider release of the imported consignments in accordance with Section 28DA, CAROTAR and CEPA Rules, recording brief reasons for any verification or suspension and avoiding mechanically imposed onerous security conditions. Issues Involved1. Detention of consignment and requirement of PD Bond and Bank Guarantee.2. Compliance with Section 28DA of the Customs Act, 1962 and relevant rules.3. Verification of the Country-Of-Origin (COO) certificate.4. Justification for provisional assessment under Section 18 of the Customs Act, 1962.5. Validity of the impugned orders based on statutory compliance and procedural fairness.Detailed Analysis1. Detention of Consignment and Requirement of PD Bond and Bank GuaranteeThe petitioners challenged the detention of their consignment of platinum alloy sheets and the requirement to submit a PD Bond equivalent to 100% of the assessable value along with a Bank Guarantee of differential duty at 10.712%. The Court found that the detention was unsustainable as the proper officer did not record any reasons suggesting that the goods did not conform to the COO criteria. The respondents failed to justify the detention based on any statutory provisions or guidelines.2. Compliance with Section 28DA of the Customs Act, 1962 and Relevant RulesSection 28DA outlines the procedure for claiming a preferential rate of duty under trade agreements. The Court noted that the proper officer must have reasons to believe that the COO criteria have not been met to justify detention. In this case, the information sought from the petitioners was duly provided, and no valid reasons were recorded for detaining the goods. The Court emphasized that the statutory scheme requires a detailed procedure for verification, which was not followed by the respondents.3. Verification of the Country-Of-Origin (COO) CertificateThe Court examined the CEPA Rules and CAROTAR, which provide a detailed procedure for verifying the COO certificate. The respondents did not initiate any process of reciprocal verification as envisaged under these rules. The Court highlighted that the proper officer must form a requisite opinion based on reasonable suspicion or doubt regarding the COO certificate. The impugned orders failed to specify any such reasons, rendering the detention unjustifiable.4. Justification for Provisional Assessment under Section 18 of the Customs Act, 1962Section 18 allows for provisional assessment of duty in specific situations. The Court found that the respondents did not justify the provisional assessment based on any of the grounds stipulated in Section 18(1). The requirement of a Bank Guarantee was imposed mechanically without considering the relevant guidelines and statutory provisions. The Court referred to previous judgments, emphasizing that onerous conditions for provisional release must be justified and cannot be imposed arbitrarily.5. Validity of the Impugned Orders Based on Statutory Compliance and Procedural FairnessThe Court underscored the importance of recording reasons for detention and provisional assessment. The impugned orders failed to reflect any consideration of the statutory criteria or the reasons for initiating verification. The Court reiterated that the requirement of reasons forms the core of fairness and due application of mind, constituting a fundamental component of the rule of law. The respondents' actions were found to be arbitrary and lacking in procedural fairness.ConclusionThe Court quashed the impugned orders dated 31 July 2024, directing the respondents to reconsider the release of the imported articles with due expedition. The proper officer was cautioned to bear in mind the aspect of onerous conditions as explained in the Bullion and Jewellers Association case. The judgment emphasized the need for statutory compliance, procedural fairness, and the recording of reasons for any detention or provisional assessment actions.