Commnr. Of Customs (Import), Raigad vs M/S. Finacord Chemicals (P) Ltd. .

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 1633-1638 OF 2004

COMMISSIONER OF CUSTOMS (IMPORT), RAIGAD ... Appellant

VERSUS

M/S. FINACORD CHEMICALS (P) LTD. & ORS. ... Respondents

WITH

CIVIL APPEAL NO. 6541 OF 2010

CIVIL APPEAL NO. 3410 OF 2006

J U D G M E N T

A. K. SIKRI, J.

CIVIL APPEAL NOS. 1633-1638 OF 2004

In August, 1991, respondent nos. 1 and 2 herein

imported 2 and 3 containers respectively of alcohol under

the description “Undenatured Ethyl Alcohol' (Malt Spirit

plus or minus 59.3% Vol.) from an intermediary, M/s. Ravco

International Ltd., England (hereinafter referred to as

'RIL' for short). As per the Department, these imports were

under invoiced at pound 1.40 per litre whereas the actual

price of the said goods was pound 3.78 per litre. This led

to issuance of a show cause notice dated 28.09.1992 upon the Signature Not Verified importers/respondents herein. It was alleged that the Digitally signed by Meenakshi Kohli Date: 2015.05.06 16:41:12 IST Reason: correct transaction value of the imported goods was pound

C.A.Nos.1633-1638 of 2004 etc. 1 3.78 per bulk litre and that the goods were imported against

invalid licenses. Accordingly, demand of customs duty was

raised against respondent nos. 1 and 2. It also proposed

confiscation of the goods and penal action against the

respondents.

The Collector of Customs vide Order-in-Original dated

28.02.1995 upheld the misdeclaration and undervaluation and

further held respondent no. 1 to pay customs duty of

Rs.1,63,74,648/- along with penalty of Rs.1,64,00,000 and

goods to be confiscated. Respondent no.2 goods valued at

Rs.83,04,501/- to be confiscated. However, the same were

provisionally released on furnishing Bank Guarantee of Rs. 1

crore, differential duty to the tune of Rs. 77,34,994/-. A

further penalty of Rs. 2.63 crores was imposed. Respondent

no. 3 was directed to pay Rs. 20 lakhs as penalty,

respondent no. 4 was imposed the penalty of Rs. 1 crore and

respondent no. 5 was to pay Rs. 1 lakh as penalty.

Aggrieved, the respondents filed appeals before the

Customs, Excise and Service Tax Appellate Tribunal

(hereinafter referred to as 'CESTAT') and the CESTAT vide

its final order dated 10.09.2003, partly allowed the appeals

thereby setting aside the order of the Collector regarding

enhancement of the unit price, while upholding that import

of the said goods was unauthorised and was liable for

confiscation. However, the CESTAT reduced the amount of

C.A.Nos.1633-1638 of 2004 etc. 2 fine imposed and set aside the penalties imposed on the

respondents. Hence the present Appeals.

Insofar as the Revenue /Department is concerned, it is

aggrieved by the following findings arrived at by the CESTAT

in the impugned judgment: -

1. Accepting the version of the respondents-assessees

that the goods in question were imported at UK pound

1.40 per bulk litre and not UK pound 3.78 per bulk

litre as claimed by the Revenue.

2. The reduction of redemption fine from Rs.51,62,413/-

to Rs. 10 lakhs.

3. The reduction of penalty on Mr. S. R. Nagpal from

Rs.22,65,006 to Rs. 10 lakhs.

We may mention at this stage that against the other

findings of the Tribunal which have gone against the

assessee, the assessee has also filed the appeal which is

pending before the Bombay High Court.

Insofar as the first issue of import price of the

liquor in question is concerned, the order of the Collector

reveals that the respondents-assessees have relied upon a

letter indicating that the goods were imported at the rate

of UK pound 1.40 per bulk litre. After discussing

elaborately, the Collector rejected the authenticity or

evidentiary value of the said letter. However, apart from

C.A.Nos.1633-1638 of 2004 etc. 3 this letter, the respondents had also produced invoices and

in these invoices price of UK pound 1.40 per bulk litre is

specifically mentioned. The Collector has not taken into

account or considered the import of these invoices. On the

other hand, the CESTAT has remarked and rightly so, that

when the invoices are produced showing the purchase price of

the goods in question and authenticity of these invoices is

not doubted by the Department, these will form as the

primary evidence in support of the contention of the

respondents that the imported goods were purchased at UK

pound 1.40 per bulk litre. We thus, do not find any flaw in

the reasoning of the CESTAT while deciding this issue.

Insofar as the reduction of redemption fine as well as

the penalty is concerned, the CESTAT has given the following

reasons in doing so: -

“Redemption Fine

In view of our finding on issue (i) that the goods are liable to confiscation as they have been imported without cover of a valid licence. We hold that levy of fine is warranted. However we note that for the first time in the case of Bussa Overseas Properties Ltd. vs. CC(I) Mumbai 2002(148) ELT 328, the Tribunal held that over-proof whisky having more than 55% alcohol content by vol. is a concentrate of alcoholic beverages and until this decision, a practice to allow clearances of similar goods under REP licence was prevalent. We also note that a long period has lapsed since the import and that the goods are raw materials for manufacture of alcoholic beverages that this is not a case of duty evasion as the finding on undervaluation has on set aside by us thereby reducing the gravamen of the charge. The assessable value of the goods imported by FCPL is Rs.15,08,040/- while the assessable value of the goods imported by SRN is Rs.22,78,578/-. The

C.A.Nos.1633-1638 of 2004 etc. 4 fine levied by the Commissioner on FCPL is Rs.51,62,413/- and that of SRN is Rs.22,65,006/-. We are not able to fathom the logic behind fixing the above quantum of fines. There is nothing in the impugned order to indicate the basis on which the quantum was arrived at. Having regard to the above factors including the fact that the import Policy was liberalised subsequently and that only the charge of ITC violation has been sustained by us, we reduce the fine levied on FCPL to Rs. 10 lakhs and on SRN to Rs. 15 lakhs.”

We are of the opinion that the CESTAT has given valid

reasons for reducing the penalty and fine and the discretion

exercised by the CESTAT on valid considerations does not

call for any interference. These appeals are accordingly,

dismissed. We make it clear that the dismissal of the

appeals would not impact in any way the appeal which is

preferred by the respondents-assessees and is pending in the

Bombay High Court. The said appeal shall be decided by the

Bombay High Court on its own merits.

Civil Appeal No. 6541 of 2010 The appellants herein are carrying on the business,

inter alia, of manufacturing, sale and distribution of

Indian Made Foreign Liquor (IMFL). They are the successor

in interest of Shaw Wallace Distilleries. It so happened

that in same proceedings which were initiated against one

M/s. S. R. Nagpal and company and M/s. Finacord Chemicals

Private Limited, who had imported certain goods from England

and had sold to the appellant herein, the said goods which

C.A.Nos.1633-1638 of 2004 etc. 5 were in custody of the appellant were seized by the Customs

Department in those proceedings. The appellant felt

aggrieved by the said seizure and approached the High Court

of Bombay for release of the goods. In the said Writ

Petition No. 3220 of 1991 filed by the appellant, interim

order dated 25.10.1991 was passed which reads as under: -

“Rules returnable forthwith Respondents waive service. Order as per minutes. Petition disposed of accordingly adjudication proceedings to proceed.

Upon the petitioner no. 1 depositing the amount of Rs.1,56,64,500/- with the Additional Collector of Customs, Bombay the Petitioners are allowed to utilize 15664,50 bulk liters of Ethyl Alcohol which are the subject matter of the Supurthnama dated 7.10.1991.”

Pursuant to the aforesaid order, the appellant

deposited a sum of Rs. 1,56,64,500/- and got the siezed

goods released. The appellant, thereafter, moved another

application in the said writ petition praying that the money

deposited by it be kept with the Nationalised Bank in a

Fixed Deposit. On the said application, order dated

30.10.1991 was passed. Though the aforesaid request of the

appellant was rejected, but at the same time, the Court gave

the direction that in the event it is ultimately held that

the appellant is entitled to get back the amount deposited

by it, the same shall be refunded to the appellant with

interest at the rate of 13 per cent per annum which was the

rate of interest payable by the Nationalised Bank on Fixed

Deposits at the relevant time.

C.A.Nos.1633-1638 of 2004 etc. 6 The matter was proceeded against M/s. S. R. Nagpal and

company and M/s. Finacord Chemicals Private Limited. The

Order-in-Original was passed by the Commissioner against

those firms. However ultimately the Customs, Excise and

Service Tax Appellate Tribunal (hereinafter referred to

'CESTAT') in the appeals filed by them, gave them

substantial relief by allowing the appeals partly. The

issue as to whether there was an under-invoicing in the

import of the goods was decided in favour of the said

parties and on that ground, the additional demand of duty

was struck down. Even the redemption fine was reduced to

Rs. 10 lakhs and as far as penalty is concerned, it was

completely knocked off and set aside. We may mention here

that against that order passed by the CESTAT, the Department

had filed appeal and this court has affirmed that part of

the order of the CESTAT dismissing the appeal of the

Department. The effect thereof is that even qua M/s. S. R.

Nagpal and company and M/s. Finacord Chemicals Private

Limited, no additional duty or the penalty is payable and

the only redemption fine to the extent of Rs. 10 lakhs is

payable.

In the aforesaid background, the appellant herein,

which was not even the importer of the goods but had

purchased the goods from M/s. Finacord Chemicals Private

Limited, made an application for refund of the amount of

C.A.Nos.1633-1638 of 2004 etc. 7 Rs.1,56,64,500 which was deposited pursuant to the order

dated 25.10.1991 passed by the High Court of Bombay in Writ

Petition No. 3220 of 1991. The Commissioner while dealing

with the case of M/s. S. R. Nagpal and company and M/s.

Finacord Chemicals Private Limited had recorded certain

findings in respect of the appellant herein as well.

Insofar as the appellant is concerned, it is categorically

held that no role could be attributed to the appellant in

the import of goods in question and the appellant was the

bona fide purchaser of the goods from the said two

importers. The Commissioner also referred to the interim

orders passed by the High Court of Bombay in the Writ

Petition filed by the appellant, which are taken note of

above. However, in his order, he ultimately recorded that

the question of refund would arise only if the adjudication

order holds the appellant to be entitled to this amount or

part thereof. At the same time, it is significant to note

some pertinent observations made by him in the order to the

effect that the amount in question was in the nature of

deposit by the appellant in lieu of permission to take back

the goods and to utilise those goods pending adjudication

and if adjudication orders so warrants, this amount could be

appropriated towards dues as adjudicated, according to law.

After the order of the CESTAT holding that no

additional duty was payable, the appellant made an

C.A.Nos.1633-1638 of 2004 etc. 8 application for refund of the amount deposited by it stating

that even the importers were held not liable to pay any

duty. This application was, however, rejected invoking the

doctrine of 'unjust enrichment'. Challenging the order, the

appellant preferred Customs Appeal No. 56 of 2008 before the

High Court of Bombay. Vide the impugned judgment dated

25.06.2009 rendered by the High Court of Bombay in the

aforesaid appeal, the High Court has confirmed the

applicability of the doctrine of unjust enrichment insofar

as the demand of duty is concerned. However, insofar as the

demand of fine is concerned, the High Court has held that

the principle of unjust enrichment would not be attracted.

It is this judgment which is under challenge in the present

proceedings.

From the aforesaid narration of facts, it is clear

that insofar as the appellant is concerned, it had not

imported the goods in question. The importers were

M/s.S.R.Nagpal and company and M/s. Finacord Chemicals

Private Limited. The dispute of under-invoicing was also

qua the said two importers on the basis of which custom was

claiming lesser payment of duty by the said importers. In

the adjudication proceedings, while imposing the duty

against the said importers, a categorical finding was also

recorded at the same time that the appellant had no role to

play therein and was a bona fide purchaser of the goods from

C.A.Nos.1633-1638 of 2004 etc. 9 the said importer which were imported by them. It is also

manifest that the appellant came into picture only when the

goods purchased by the appellant were seized by the custom

department and he had to approach the High Court of Bombay

for the release of those goods. What is significant is that

as a condition for the release of the said goods, interim

order directing the appellant to deposit the amount in the

sum of Rs.1,56,64,500 was passed. It was not towards any

custom duty. In this scenario, it is difficult to hold that

the principle of unjust enrichment can at all be applied.

As far as the deposit of the aforesaid amount by the

appellant and seeking refund thereof is concerned, we need

not discuss the law on this aspect in detail as the position

would become completely transparent on taking note of some

of the circulars issued by the Central Board of Excise and

Customs, New Delhi, itself. Further, these circulars are

issued to give effect to certain judicial pronouncements.

First circular to which we would like to refer is

Circular dated 02.01.2002 issued by the Board, wherein the

Board clarified that in the matter of refund of pre-deposit,

refunds would not be covered under the provisions of Section

11B of the Customs Act or Section 35F of the Central Excise

Act, meaning thereby, the aforesaid provisions which pertain

to aforesaid unjust enrichment would not be applicable. It

C.A.Nos.1633-1638 of 2004 etc. 10 is also specifically pointed out in the said circular that

these deposits are other than duty. The circular was issued

keeping in view of the orders of this Court in few cases

including in Union of India v. Suvidhe Ltd. It is clear

from the following portion of this circular:

“The issue relating to refund of pre-deposit made during the pendency of appeal was discussed in the Board Meeting. It was decided that since the practice in the Department had all along been to consider such deposits as other than duty, such deposits should be returned in the event the appellant succeeds in appeal or the matter is remanded for fresh adjudication.

2. It would be pertinent to mention that the Revenue had recently filed a Special Leave Petition against Mumbai High Court's order in the matter of NELCO LTD, challenging the grant of interest on delayed refund of pre-deposit as to whether:

(i) the High Court is right in granting interest to the depositor since the law contained in Section 35F of the Act does in no way provide for any type of compensation in the event of an appellant finally succeeding in the appeal, and,

(ii) the refunds so claimed are covered under the provisions of Section 11B of the Act and are governed by the parameters applicable to the claim of refund of duty as the amount is deposited under Section 35F of the Central Excise Act, 1944.

The Hon'ble Supreme Court vide its order dated 26-11-2001 dismissed the appeal. Even though the Apex Court did not spell out the reasons for dismissal, it can well be construed in the light of its earlier judgment in the case of Suvidhe Ltd. and Mahavir Aluminium that the law relating to refund of pre-deposit has become final.”

It is the order dated 07.08.1996 which was passed by

this Court in Union of India v. Suvidhe Ltd. dismissing the

special leave petition which was filed by the Union of India

against the judgment of the High Court of Bombay in Suvidhe

Ltd. v. Union of India [1996 (82) ELT 177]. Since the

C.A.Nos.1633-1638 of 2004 etc. 11 special leave petition was dismissed in limine, we would

like to reproduce para 2 of the judgment of the High Court

wherein the High Court had observed that in case of such

deposits, provisions of Section 11B of the Customs Act will

have no application. This para reads as under: -

“2. Show cause notice issued by the Superintendent (Tech.) Central Excise to the

petitioner to show cause why the refund claim for Excise Duty and Redemption fine paid in a sum of Rs.14,07,410/- should be denied under Section 11B of the Central Excise Rules and Act, 1944 (sic) is impugned in the present petition. The aforesaid amount is deposited by the Petitioners not towards Excise Duty buy by way of deposit under Section 35F for availing the remedy of an appeal. Appeal of the petitioners has been allowed by the Appellate Tribunal by its Judgment and order passed on 30th of November, 1993 with consequential relief. Petitioners' prayer for refund of the amount deposited under Section 35F has not received a favourable response. On the contrary the impugned show cause notice is issued why the amount deposited should not be forfeited. In our judgment, the claim raised by the Department in the show cause notice is thoroughly dishonest and baseless. In respect of a deposit made under Section 35F, provisions of Section 11B can never be applicable. A deposit under Section 35F is not a payment of Duty but only a pre-deposit for availing the right of appeal. Such amount is bound to be refunded when the appeal is allowed with consequential relief.”

By another Circular No.802/35/2004-CX., dated

08.12.2004 issued by the Board, the Board emphasised that

such amounts should be refunded immediately as non-returning

of the deposits attracts interest that has been granted by

the courts in number of cases.

It is stated at the cost of repetition that since the

C.A.Nos.1633-1638 of 2004 etc. 12 amount in question was deposited in compliance with the

interim order passed by the High Court of Bombay, which was

not towards duty, the question of unjust enrichment would

not arise at all.

This appeal is, accordingly, allowed. That part of

the order of the High Court of Bombay which dis-entitles

refund of duty amount is set aside. The entire amount shall

be refunded along with interest calculated at the rate of 13

per cent per annum, as order to this effect was specifically

passed on 30.10.1991 in Writ Petition No. 3220 of 1991 by

the High Court of Bombay.

Civil Appeal No. 3410 of 2006

In view of the orders passed above, this appeal

preferred by the Commissioner of Customs is dismissed.

........................., J.

[ A.K. SIKRI ]

........................., J.

[ ROHINTON FALI NARIMAN ]

New Delhi;

April 08, 2015

C.A.Nos.1633-1638 of 2004 etc. 13 ITEM NO.102 COURT NO.14 SECTION III

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No(s). 1633-1638/2004

COMMNR. OF CUSTOMS (IMPORT), RAIGAD Appellant(s) VERSUS M/S. FINACORD CHEMICALS (P) LTD. & ORS. Respondent(s) (with office report)

WITH C.A. No. 3410/2006 (With Office Report)

C.A. No. 6541/2010

Date : 08/04/2015 These appeals were called on for hearing today.

CORAM :

HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN

For Appellant(s) Mr. K. Radhakrishnan, Sr. Adv.

Ms. Nisha Bagchi, Adv.

Ms. Sushma Manchanda, Adv.

Ms. Pooja Sharma, Adv.

Mr. B. Krishna Prasad, Adv.

Mr. S. K. Bagaria, Sr. Adv.

Ms. Parul Shukla, Adv.

Mr. Ankur Saigal, Adv.

Mr. K. Ajit Singh, Adv.

Mr. Jiten Mehra, Adv.

Mr. Mahesh Agarwal, Adv.

Mr. Rishi Agrawala, Adv.

Mr. E. C. Agrawala, Adv.

For Respondent(s) Mr. Vikram Nankani, Sr. Adv.

Mr. Alok Yadav, Adv.

Mr. Somnath Shukla, Adv.

Ms. Bina Gupta, Adv.

UPON hearing the counsel the Court made the following O R D E R

C.A. Nos. 1633-1638 of 2004 These appeals are dismissed in terms of the signed reportable judgment.

C.A.Nos.1633-1638 of 2004 etc. 14 Civil Appeal No. 3410 of 2006 This appeal is dismissed in terms of the signed reportable judgment.

Civil Appeal No. 6541 of 2010 This appeal is allowed in terms of the signed reportable judgment.

(Nidhi Ahuja) (Suman Jain) COURT MASTER COURT MASTER

[Signed reportable judgment is placed on the file.]

C.A.Nos.1633-1638 of 2004 etc. 15