Case Note & Summary
The dispute concerned the import of RBD palm oil by the first respondent during the period November 1978 to March 1979, with clearance of 13,500 metric tonnes. The import of the oil itself was permissible. However, the Customs authorities alleged that the stainless steel containers in which the oil was imported were banned items that had been deliberately painted to resemble mild steel containers to evade duty and facilitate clearance. Consequently, show cause notices were issued under Section 28 of the Customs Act, 1962 on 11 October 1979 for short-levy of duty and under Section 124 on 21 January 1980 for confiscation of the containers. The first respondent challenged these notices by filing a writ petition before the Delhi High Court on 8 February 1980. The High Court allowed the writ petition on 22 August 1980, holding that the show cause notices could not be issued unless the clearance order under Section 47 was first revised under Section 130, and that the stainless steel containers were not separate importable items. Against this, the Union of India appealed to the Supreme Court. Special leave was granted on 9 October 1980, and the Court directed that the seized stainless steel containers remain under seizure in the factory premises of the first respondent under Customs supervision. The appeal was initially dismissed on 28 November 1991, but on a review petition by the appellants, that dismissal was set aside and the appeal was directed to be heard afresh. The core legal issues before the Supreme Court were whether the High Court was correct in requiring prior revision of the Section 47 clearance order under Section 130 before issuance of show cause notices under Sections 28 and 124, and whether the High Court ought to have examined factual evidence at the show cause stage under Article 226. The appellants contended that the clearance was obtained by fraud because the stainless steel containers were camouflaged, and therefore the show cause notices were valid without prior revision. The respondents argued that modern marketing practice required refined oil to be transported in stainless steel or epoxy-coated tanks, that the containers were not separately imported, and that the clearance order could not be ignored without revision. The Supreme Court examined the statutory scheme. It noted that a show cause notice under Section 28 for duties not levied or short-levied can only be issued subsequent to clearance under Section 47, and the limitation period commences from the relevant date defined in Section 28(3), which in a case of non-levy is the date of the clearance order. Therefore, the High Court erred in holding that the Section 28 notice required prior revision under Section 130. As regards Section 124, the Court held that fraud, if established, unravels all; an order under Section 47 obtained by fraudulent methods need not be set aside under Section 130 before confiscation proceedings under Section 124 can be initiated. The Court also disapproved of the High Court entering into the thicket of evidence at the show cause stage, as the authorities were to weigh evidence after giving the respondents an opportunity. The High Court also ought to have reserved liberty to the appellants to proceed under Section 130 if that was considered appropriate. Accordingly, the Supreme Court allowed the appeal, set aside the High Court's judgment and order, and dismissed the writ petition. The proceedings pursuant to the show cause notices under Sections 28 and 124 were directed to continue, with the respondents having full opportunity to place evidence. Pending adjudication, the stainless steel containers were to remain under seizure in the first respondent's premises under Customs supervision. No order as to costs was made.
Headnote
A) Customs Law - Clearance of Goods for Home Consumption - Section 47 Customs Act, 1962 - Fraudulent clearance does not require prior revision under Section 130 before confiscation - The High Court held that no show cause notices under Sections 28 or 124 could be issued unless the order under Section 47 had been revised under Section 130. The Supreme Court held this was erroneous because Section 28 notice operates after clearance and fraud vitiates the clearance order. Held that fraudulent clearance cannot bar confiscation proceedings. B) Customs Law - Notice for Payment of Duties Not Levied or Short-Levied - Section 28 Customs Act, 1962 - Post-clearance notice and limitation from relevant date under Section 28(3) - The High Court erred in requiring prior revision under Section 130 before issuance of Section 28 notice. The Supreme Court explained that limitation for Section 28 notice runs from the relevant date, which in case of non-levy is the date of clearance order under Section 47. Held that Section 28 notice is permissible subsequent to clearance. C) Customs Law - Confiscation of Goods and Show Cause Notice - Section 124 Customs Act, 1962 - Fraud unravels all; no prior setting aside of fraudulent clearance required - Customs alleged stainless steel containers were banned and camouflaged by painting to resemble mild steel to evade duty. The Supreme Court held that an order under Section 47 obtained by fraudulent methods need not be revised under Section 130 before initiating confiscation under Section 124. Held that show cause notice under Section 124 is valid at pre-adjudication stage. D) Constitutional Law - Writ Jurisdiction Under Article 226 - Interference at show cause stage - Constitution of India, 1950, Article 226 - High Court should not enter into thicket of evidence or stultify investigation at show cause stage. The High Court examined evidence about marketing practices and container disclosure. Supreme Court disapproved of going into facts and directed authorities to weigh evidence after considering respondents' response. Held that writ petition quashing show cause notices was premature. E) Customs Law - Alternative Remedy and Liberty Under Section 130 - Section 130 Customs Act, 1962 - High Court should have reserved liberty to appellants if Section 130 was appropriate - The High Court allowed the writ petition without reserving liberty to the appellants to proceed under Section 130, which it considered the appropriate course. The Supreme Court held that such liberty should have been granted. Held that failure to reserve liberty compounded error.
Issue of Consideration
Whether show cause notices under Sections 28 and 124 of the Customs Act, 1962 could be issued without first revising the clearance order under Section 47 under Section 130; whether the High Court erred in entertaining factual evidence at the show cause stage under Article 226.
Final Decision
Appeal allowed; judgment and order of Delhi High Court dated 22 August 1980 set aside; writ petition filed by respondents dismissed; proceedings pursuant to show cause notices under Sections 28 and 124 of the Customs Act, 1962 to continue; respondents to have opportunity to place evidence; pending adjudications, stainless steel containers to remain under seizure at first respondent's premises under Customs Officer supervision; no order as to costs.
Law Points
- A show cause notice under Section 28 of the Customs Act
- 1962 for duties not levied or short-levied can be issued only subsequent to clearance under Section 47
- and limitation runs from the 'relevant date' as defined in Section 28(3). The High Court erred in requiring prior revision of a clearance order under Section 130 before issuing show cause notices under Sections 28 and 124. Fraud vitiates a clearance order under Section 47
- such an order obtained by fraudulent methods need not be set aside under Section 130 before confiscation under Section 124. High Court should not ordinarily interfere under Article 226 at the show cause stage by examining factual evidence.
