2025 (8) TMI 730 - HC - Customs

Goods not prohibited under Customs Act 111(d); no penalty under 112(a) as exemption notification applied

Commissioner of Customs (Preventive) Versus M/s. Marvel Fashions.

Commissioner of Customs (Preventive) Versus M/s. Marvel Fashions. - 2025:GUJHC:44609 - DB 1. ISSUES PRESENTED and CONSIDERED 1. Whether the goods in question were liable for confiscation under Section 111(d) of the Customs Act, 1962 on the ground that they were prohibited goods. 2. Whether the Tribunal was justified in setting aside the order of confiscation of goods and the penalty imposed under Section 112(a) of the Customs Act, 1962. 3. Whether the goods became prohibited goods under Section 111(a) of the Customs Act, 1962 by virtue of misdeclaration and claiming exemption under Notification No. 53/97-CUS dated 06.03.1997 (as amended). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of goods for confiscation under Section 111(d) of the Customs Act, 1962 - Relevant Legal Framework and Precedents: Section 111(d) provides for confiscation of goods imported or attempted to be imported contrary to any prohibition imposed by or under the Customs Act or any other law in force. Rules 11, 14(1), and 14(2) of the Foreign Trade (Regulation) Rules, 1993 prohibit making false declarations or using fraudulent practices to obtain import licenses. - Court's Interpretation and Reasoning: The Court emphasized that Section 111(d) applies strictly to goods prohibited by law. The goods in question (100% Polyester Dyed Piled Fabrics) were not prohibited under the Customs Act or any other law. The adjudicating authority's reasoning that misdeclaration of the goods' purpose (claiming exemption under Notification No. 53/97-CUS for manufacture of export products by a 100% EOU) rendered the goods prohibited was rejected. The Tribunal correctly held that misdeclaration alone does not convert non-prohibited goods into prohibited goods for the purpose of confiscation under Section 111(d). - Key Evidence and Findings: Investigation revealed the goods were scarves, not dupattas as declared, and were imported on a High Sea Sales basis. The EOU had requisite licenses and permissions, and there was no revocation of such permissions. The goods were not banned or prohibited under any statute. - Application of Law to Facts: The Court applied the statutory language strictly, holding that absence of prohibition under law precludes confiscation under Section 111(d), regardless of misdeclaration or fraudulent intent. - Treatment of Competing Arguments: The Revenue argued that misdeclaration and fraudulent intent to evade duty rendered the goods prohibited. The Court rejected this, noting the distinction between prohibited goods and goods subject to penalty for misdeclaration. - Conclusion: The goods were not liable for confiscation under Section 111(d) as they were not prohibited goods under the Customs Act or any other law. Issue 2: Validity of setting aside the order of confiscation and penalty under Section 112(a) - Relevant Legal Framework and Precedents: Section 112(a) authorizes imposition of penalty for contraventions of the Customs Act. Rules 14(1) and 14(2) of the Foreign Trade (Regulation) Rules prohibit false declarations and fraudulent practices in import/export licensing. - Court's Interpretation and Reasoning: The Tribunal set aside the penalty and confiscation orders because the foundational premise-that goods were prohibited-was not established. The Court noted that the Rules invoked relate to violations of licensing conditions under the Foreign Trade (Development and Regulation) Act, 1992, and do not automatically render goods prohibited under the Customs Act. Therefore, penalty under Section 112(a) predicated on confiscation under Section 111(d) could not be sustained. - Key Evidence and Findings: The adjudicating authority found misdeclaration and fraudulent intent but did not establish prohibition of goods under law. The Tribunal found no evidence of revocation of EOU permissions or prohibition of goods. - Application of Law to Facts: Since confiscation was not justified, penalties dependent on such confiscation were also invalid. - Treatment of Competing Arguments: Revenue's contention that fraudulent misdeclaration warranted penalty was considered insufficient to sustain penalty without a valid confiscation order. - Conclusion: The Tribunal was justified in setting aside the penalty imposed under Section 112(a) along with the order of confiscation. Issue 3: Whether goods became prohibited under Section 111(a) due to misdeclaration and claiming exemption under Notification No. 53/97-CUS - Relevant Legal Framework and Precedents: Section 111(a) concerns confiscation of goods imported without payment of duty when duty is leviable. Notification No. 53/97-CUS exempts certain imports by 100% EOUs from duty subject to conditions. - Court's Interpretation and Reasoning: The Court found no evidence that the goods were imported without due permission or in violation of the exemption conditions. The EOU had valid licenses and permissions from the Development Commissioner and Board of Approval, and no revocation was recorded. Misdeclaration of the goods' nature or purpose does not automatically convert the goods into prohibited goods or make them liable for confiscation under Section 111(a). - Key Evidence and Findings: Documents and letters confirmed High Sea Sales transactions and exemption claims under the relevant notification. No export order was found, but absence of export order alone does not render goods prohibited. - Application of Law to Facts: The Court applied the statutory provisions and notification conditions, concluding that the goods did not become prohibited by virtue of misdeclaration or exemption claims. - Treatment of Competing Arguments: The Revenue's argument that misdeclaration and absence of export orders rendered goods prohibited was rejected as beyond the scope of Section 111(a) and the notification. - Conclusion: The goods did not become prohibited goods under Section 111(a) and were not liable for confiscation on that ground.