Customs Act Settlement: Supreme Court clarifies the scope of Section 127B in cases of smuggled goods: Yamal Manojbhai vs. Union of India (2023)

Introduction

Date of the Judgment: 04 May 2023

Citation: 2023 INSC 412

Judges: Krishna Murari, J. and Sanjay Karol, J. (Majority opinion by Krishna Murari, J; Dissenting opinion by Sanjay Karol, J.)

Can a person accused of smuggling goods, specifically watches, seek settlement under the Customs Act, 1962, if caught within the customs area? The Supreme Court of India recently addressed this critical question in a case involving an NRI caught at Delhi International Airport, who tried to settle the matter under Section 127B of the Customs Act. This judgment clarifies the conflict between different High Court rulings on the applicability of settlement provisions for goods listed under Section 123 of the Customs Act.

Case Background

The petitioner, a Non-Resident Indian (NRI), was arrested on October 4, 2022, at Delhi International Airport for allegedly attempting to smuggle high-value goods, primarily watches, through the green channel to evade customs duty. A detailed examination of the petitioner’s person and baggage led to the recovery of seven wristwatches and other high-value items. Consequently, the petitioner was arrested on October 5, 2022, for offenses under Sections 132 and 135 of the Customs Act. Unable to travel outside India since October 6, 2022, the petitioner sought to settle the dispute by approaching the Settlement Commission under Section 127 of the Customs Act. The petitioner filed an Interlocutory Application (I.A.) seeking the issuance of a show cause notice by the customs authorities to initiate the settlement process.

Timeline

Course of Proceedings

Initially, the petitioner filed a writ petition seeking permission for home-cooked food while in custody. Subsequently, an I.A. was filed seeking directions for the customs authorities to initiate settlement proceedings. An ex-parte order was passed on February 20, 2023, directing the Commissioner of Customs to issue a show-cause notice. However, this order was recalled after the respondent raised objections regarding the jurisdiction of the Settlement Commission. Both parties were then heard at length on the merits of the case. During these arguments, a conflict between judgments of the Bombay High Court and the Delhi High Court was brought to the Supreme Court’s attention.

Legal Framework

The core legal issue revolves around the interpretation of Section 123 and Section 127B of the Customs Act, 1962.

• Section 123 of the Customs Act, 1962: This section deals with the burden of proof in certain cases. It states that if goods listed under this section (such as gold and watches) are seized under the reasonable belief that they are smuggled, the burden of proving that they are not smuggled shifts to the person from whom the goods were seized.
  
  “(1) Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be— (a) in a case where such seizure is made from the possession of any person,— (i) on the person from whose possession the goods were seized; and (ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other person; (b) in any other case, on the person, if any, who claims to be the owner of the goods so seized. (2) This section shall apply to gold [and manufactures thereof] watches, and any other class of goods which the Central Government may by notification in the Official Gazette, specify.”
• Section 127B of the Customs Act, 1962: This section provides the procedure for applying for settlement of cases before the Settlement Commission. However, it includes a proviso that explicitly bars applications for settlement in relation to goods to which Section 123 applies.
  
  “(1) Any importer, exporter or any other person (hereinafter referred to as the applicant in this Chapter) may, in respect of a case, relating to him make an application, before adjudication to the Settlement Commission to have the case settled, in such form and in such manner as may be specified by rules, and containing a full and true disclosure of his duty liability which has not been disclosed before the proper officer, the manner in which such liability has been incurred, the additional amount of customs duty accepted to be payable by him and such other particulars as may be specified by rules including the particulars of such dutiable goods in respect of which he admits short levy on account of misclassification, under-valuation or inapplicability of exemption notification [or otherwise] and such application shall be disposed of in the manner hereinafter provided: Provided that no such application shall be made unless,— (a) the applicant has filed a bill of entry, or a shipping bill, in respect of import or export of such goods, as the case may be, and in relation to such bill of entry or shipping bill, a show cause notice has been issued to him by the proper officer; (b) the additional amount of duty accepted by the applicant in his application exceeds three lakh rupees; and (c) the applicant has paid the additional amount of customs duty accepted by him along with interest due under section 28AB: Provided further that no application shall be entertained by the Settlement Commission under this sub-section in cases which are pending in the Appellate Tribunal or any court: Provided also that no application under this sub-section shall be made in relation to goods to which section 123 applies or to goods in relation to which any offence under the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985) has been committed: Provided also that no application under this sub-section shall be made for the interpretation of the classification of the goods under the Customs Tariff Act, 1975 (51 of 1975).”

Arguments

The petitioner argued that the bar on settlement under Section 127B for goods listed under Section 123 should not apply when the goods are seized within the customs area. The petitioner relied on the Bombay High Court judgment in Union Of India vs Suresh Raheja & Ors [2011 (267) E.L.T. 487 (Bom.)], which held that if the origin of the goods is not in dispute (i.e., they are of foreign origin), the bar under Section 127B does not apply. The petitioner contended that since he was caught within the customs area, the question of proving the goods were not smuggled becomes redundant, thus making Section 123 inapplicable.

The respondent, on the other hand, contended that Section 127B explicitly bars settlement for goods listed under Section 123, irrespective of where the seizure occurs. The respondent relied on the Delhi High Court judgment in Additional Commission of Customs vs Ashok Kumar [2016 (336) E.L.T 224 (Del)], which stated that if goods are not mentioned under Section 123 of the Customs Act, the bar under Section 127 of the same Act would not apply. The respondent also argued that non-declaration of goods under Section 77 of the Customs Act and the act of importing goods at the instance of another person should disqualify the petitioner from seeking settlement.

The petitioner argued that the legislative object is to open doors for settlement and not to rigidly construe beneficial provisions in a mechanical manner that would prevent settlement of cases.

The respondent contended that a non-declaration of goods, as mandated by Section 77 of the Customs Act, ousts the jurisdiction of the Settlement Commission. The respondent also contended that any person who is importing the impugned goods at the instance of another person, is a smuggler, and as such, the Settlement Commission cannot be approached in such cases.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether a settlement remedy under Section 127B of the Customs Act, 1962, would be available for seized goods which are specified under Section 123 of the said Act?
2. Whether, in the attending facts, the exercise of powers under Article 32 of the Constitution of India be appropriate?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court, while agreeing with the Bombay High Court’s view in Union Of India vs Suresh Raheja & Ors [2011 (267) E.L.T. 487 (Bom.)], held that the bar under Section 127B of the Customs Act does not apply when goods listed under Section 123 are seized within the customs area. The court reasoned that in such cases, the burden of proof under Section 123 becomes redundant.

The Court rejected the argument that non-declaration of goods under Section 77 of the Customs Act bars the settlement process. The court also rejected the argument that a person importing goods at the instance of another person is a smuggler and cannot approach the Settlement Commission.

The Court observed that, if at all, the Settlement Commission would deem fit, it can always seek further report from the “Commission (Investigation)” appointed within the Settlement Commission even after issuance of the show cause notice for this one time opportunity of settlement.

The court also stated that it refrains from making any observations on the merits of the case and leaves the same for consideration by the Settlement Commission.

The Supreme Court’s decision was based on the following key reasons:

• The need to protect the fundamental rights of accused persons.
• The legislative intent behind the Settlement Commission.
• The redundancy of the burden of proof under Section 123 when goods are seized within the customs area.
• The need to ensure that the remedy of settlement is not rendered ineffective.

The majority opinion was delivered by Justice Krishna Murari. Justice Sanjay Karol delivered a dissenting opinion, disagreeing with the majority’s view on the interpretation of Section 127B and the maintainability of the writ petition.

The dissenting opinion held that even without any controversy about the origin of the goods, Section 127B of the Act would not apply for settlement in respect of the goods enumerated under Section 123 as this goes against the statutory scheme of penal consequences for committing certain offences such as for evading duty. The dissenting opinion also stated that the approach taken by the Petitioner, in seeking the relief concerning the merits of the present dispute by way of an Interlocutory Application, is unwarranted and undesirable for not exhausting the appropriate alternative remedies.