2025 (10) TMI 402 - HC - Customs

Section 47 clearance upheld; sixth respondent violated procedures and natural justice in treating Pakistani-origin imported dry dates as prohibited

Make India Impex Versus Union of India, Additional Director General, Department of Revenue Intelligence, Mumbai, The Chief Commissioner of Customs, Maharashtra, The Commissioner of Customs (NS-I), Maharashtra, The Senior Intelligence Officer, DRI, MZU, NS-II Maharashtra, Mr. Sumit Kataria The Intelligence Officer DRI, MZU, NS-II Maharashtra.

The HC held that if the imported dry dates are of Pakistani origin they would be prohibited, but a proper officer had prima facie examined the matter and ... Clearance of imported goods - cleared goods brought back to the CFS under force and compulsion - Seeking release of goods comprising approximately 56 tons of dry dates - pakistani origin goods - mis-declaration of country of origin of goods - prohibited goods - HELD THAT:- In the present case, if the goods are of Pakistani origin, then, under the relevant notification, they would be prohibited goods, about which there can be no dispute. The Respondents, in this regard, have sought to justify their action on the basis of the intelligence information received. However, this issue, at least prima facie, was examined by the proper officer who made the section 47 clearance order. This officer’s attention was specifically drawn to the possibility of the dray dates having a Pakistani origin. The statutory clearance order was made almost seven days after the bill of entry was lodged. The goods were actually cleared in pursuance of the statutory clearance order. This statutory clearance order was supported by several other clearances issued by diverse prescribed authorities. In contrast, the sixth respondent, by ignoring this entire exercise, and without following any lawful procedures or complying with principles of natural justice, proceeded on the firm belief that the goods in question were of Pakistani origin and were consequently prohibited goods. Apart from all this, the Sixth Respondents' acts did not appear to have any legal backing or were not undertaken in accordance with the prescribed legal procedures - An equitable order, upholding the rule of law, protecting, to the extent possible, the interests of the revenue and the petitioner, will therefore have to be made. The actions of the sixth Respondent not approved, still, considering that jurisdiction exercised under Article 226 of the Constitution of India, the Respondents is granted an opportunity to issue the Petitioner a show cause notice within four weeks from today and such show cause notice disposed off within six weeks of the receipt of the response from the Petitioner on the issue of the status of the imported goods. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a customs/intelligence officer may, without any contemporaneous recorded satisfaction, written order or invocation of statutory procedure, effectuate the return to custody of goods already cleared under a statutory clearance (section 47) by telephonically directing or requesting customs brokers and transporters to bring the goods back within the customs premises. 2. Whether the actions described (telephonic requests/coordination to bring back cleared goods) fall within the scope of Section 106 (power to stop/search conveyances) or any other lawful power under the Customs Act absent recorded 'reason to believe' and procedural compliance. 3. Whether absence of issuance of a show-cause notice and failure to follow prescribed revision/stay or natural justice procedures can be justified where intelligence subsequently suggests mis-declaration of country of origin (possible prohibited origin) after an out-of-charge order and gate pass have been issued. 4. Appropriate remedial directions where a prima facie unlawful executive action has caused detention/divestment of lawfully cleared goods that are perishable and where revenue/procedural concerns remain. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of returning goods cleared under section 47 by informal telephonic direction Legal framework: Section 47 empowers the proper officer, upon satisfaction that goods entered for home consumption are not prohibited and duties/charges paid, to order clearance for home consumption; an Out-of-Charge (OOC) and gate pass effect lawful divestment of customs custody. Precedent treatment: Respondents relied on established authority recognizing that clearance obtained by fraud does not bar subsequent show-cause proceedings for confiscation; the Court accepted the legal proposition but distinguished its application where no show-cause was issued and where informal coercive actions were taken instead of formal procedures. Interpretation and reasoning: The Court focused on the decision-making process rather than ultimate factual correctness. Once statutory clearance (section 47) and OOC were issued, custody lawfully passed to the importer/agent. The impugned conduct - telephonic calls to brokers/transporters to bring back already cleared goods - ignored the statutory clearance and lacked any lawful order purportedly revoking the clearance. Such executive intervention, absent statutory authority or formal revocation, was unlawful. The Court found it prima facie implausible that the goods returned solely on a mere 'request,' given the consequences and timing. Ratio vs. Obiter: Ratio - an officer cannot, under colour of office, divest custody of goods lawfully released under section 47 by informal telephonic directions absent lawful authority and procedural compliance. Obiter - comments on incredulity of 'request' as sufficient to compel return. Conclusions: The return of lawfully cleared goods by informal telephonic measures was not supported by law and failed the requirement of procedural propriety and natural justice. The conduct was therefore prima facie unlawful. Issue 2 - Applicability and limits of Section 106 (stop/search) to the facts Legal framework: Section 106 permits stop/search of conveyances where the proper officer 'has reason to believe' the conveyance has been or is being used in smuggling or carriage of smuggled goods; subsection provides powers to stop/search and use lawful means including force in specified scenarios. Precedent treatment: Respondents invoked Section 106 as a statutory basis; the Court reviewed this reliance and required the statutory precondition of 'reason to believe' to be demonstrable by order, file note or contemporaneous record and not be sustained by after-the-fact notations or unsupported email communications. Interpretation and reasoning: Section 106 contemplates action where there exists a contemporaneous reason to believe; such reasons must be reflected in the record to enable judicial review and to prevent arbitrary exercise of power. The affidavit and material did not show any prior file notation or recorded reason supporting the exercise of Section 106 powers. An email requesting admission of containers back into CFS was insufficient to constitute the statutory 'reason to believe.' The Court rejected the proposition that 'reason to believe' should be presumed purely because intelligence was communicated, absent documentation or recorded satisfaction. Ratio vs. Obiter: Ratio - powers under Section 106 cannot be exercised arbitrarily; the statutory precondition of 'reason to believe' must be evidenced in the record before or contemporaneous with action. Obiter - comparison with other statutes requiring recorded reasons (e.g., PMLA) and general observations on safeguards. Conclusions: Section 106 did not legally justify the impugned conduct; even if it potentially applied, the mandatory condition ('reason to believe') was not shown to have been recorded or contemporaneously noted as required for lawful exercise. Issue 3 - Requirement of procedural safeguards, natural justice and available statutory remedies where intelligence arises after clearance Legal framework: Customs Act contains provisions for show-cause, confiscation, revision and related adjudicatory procedures; principles of natural justice and minimum procedural fairness apply before inflicting civil consequences. Clearance under section 47 can be revisited by following prescribed procedures rather than by summary executive action. Precedent treatment: The Court accepted the settled proposition that a clearance obtained by fraud does not prevent subsequent show-cause action, but emphasized that established legal process must be followed (show-cause, opportunity to be heard, adjudication), distinguishing formal statutory remedies from informal executive coercion. Interpretation and reasoning: Even assuming intelligence suggesting prohibited origin, the Customs Authorities had statutory avenues (issuance of show-cause notice, revision/stay) to address the issue. The sixth respondent did not follow these avenues; there was no show-cause notice, no recorded order revoking clearance, and no compliance with natural justice prior to causing divestment. The Court stressed that the ends (protecting revenue) do not justify unlawful means and that the decision-making process must be lawful. The perishable nature of goods added urgency and required timely adjudication rather than indefinite delay risking spoilage. Ratio vs. Obiter: Ratio - allegation of prohibited origin must be addressed by invoking formal statutory remedies with notice and opportunity to respond; summary coercive measures without such process are unlawful. Obiter - observations on potential redemption fine discretion and perishable goods considerations. Conclusions: Procedural safeguards were not complied with; the proper course was issuance of a show-cause notice and adjudication. Informal coercion to return cleared goods without following legal process was unlawful. Issue 4 - Appropriate relief where executive action is prima facie unlawful but intelligence may implicate revenue/prohibition concerns Legal framework: Writ jurisdiction permits equitable directions balancing rule of law, revenue interests and rights of parties; customs may accept redemption fines or require bank guarantees where lawful. Precedent treatment: The Court relied on its supervisory jurisdiction to fashion a prospective timetable and conditions rather than grant immediate unconditional release, taking into account both lawfulness concerns and legitimate revenue/prohibition interests. Interpretation and reasoning: The Court declined to order immediate release despite disapproving the sixth respondent's conduct because intelligence suggested a potential statutory prohibition. Instead the Court directed a deterministic remedy: issuance of a show-cause notice within four weeks and disposal within six weeks of response, with disclosure of adverse material and opportunity to be heard. If timelines not met, goods to be released subject to tentative redemption fine or bank guarantee security. The Court emphasized that discretion to release by accepting a redemption fine rests with authorities but must be exercised judicially and promptly to avoid spoilage and undue prejudice. Ratio vs. Obiter: Ratio - where impugned executive action is prima facie unlawful but revenue/prohibition concerns exist, the Court may direct prompt formal proceedings (show-cause with specified timelines) and conditional release if timelines are not met, balancing interests. Obiter - specific monetary figures and examples of perishable goods consequences. Conclusions: The Court ordered (a) show-cause notice to be issued within four weeks and disposed within six weeks of reply, with full disclosure and hearing; (b) failure to comply with timelines to trigger release subject to redemption fine or bank guarantee; (c) contentions on prohibited status left open for proper officer determination. The rule was made partly absolute to that extent.