Supreme Court clarifies “Importer” definition under Customs Act: Nalin Choksey vs. Commissioner of Customs (2024)

Date of the Judgment: 27 November 2024

Citation: 2024 INSC 933

Judges: B.V. Nagarathna J. and Nongmeikapam Kotiswar Singh J.

Can a person who buys a car after it has been imported be held liable for unpaid customs duty? The Supreme Court of India recently addressed this question, clarifying who qualifies as an “importer” under the Customs Act, 1962. The Court’s decision clarifies that a subsequent purchaser of goods cannot be held liable for the customs duty evasion by the original importer. The judgment was delivered by a two-judge bench comprising Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh.

Case Background

In 2002, Sri Jalaludheen Kunhi Thayil imported a Porsche Carrera car. In 2003, he sold the car to Sri Shailesh Kumar. Subsequently, in October 2004, the appellant, Nalin Choksey, purchased the car. In 2007, a Show-Cause Notice was issued to the importer, the first purchaser, the appellant, and a broker, alleging misdeclaration of the car’s model and year of manufacture, and tampering with the chassis number, to evade customs duty. The notice demanded Rs. 17,92,847 as short-levied customs duty. The Commissioner of Customs confirmed the demand and ordered confiscation of the car with an option to redeem it on payment of fine and differential duty. This demand was jointly and severely against the importer and the appellant.

Timeline

Course of Proceedings

The appellant appealed to the Customs, Excise and Service Tax Appellate Tribunal, which ruled in his favor, stating he was a bonafide purchaser with no role in the import or misdeclaration. The Customs Department then appealed to the High Court of Kerala, which overturned the Tribunal’s decision, holding that the appellant was liable to pay the customs duty as a consequence of redeeming the car under Section 125 of the Customs Act, 1962.

Legal Framework

The case revolves around the interpretation of key provisions of the Customs Act, 1962 and the Motor Vehicles Act, 1988. The relevant sections are:

• Section 2(26) of the Customs Act, 1962: Defines “importer” as including “any owner, beneficial owner or any person holding himself out to be the importer” between the time of importation and clearance for home consumption.
• Section 28(1) of the Customs Act, 1962: Deals with the recovery of customs duty not levied or short-levied.
• Section 124 of the Customs Act, 1962: Concerns the issuance of a show-cause notice before confiscation of goods.
• Section 125 of the Customs Act, 1962: Provides an option to pay a fine in lieu of confiscation, also making the owner or possessor liable for duty and charges. The relevant portion is as follows:

  “125. Option to pay fine in lieu of confiscation. —(1) Whenever confiscation of any goods is authorised by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being in force, and shall, in the case of any other goods, give to the owner of the goods or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit:
  Provided that where the proceedings are deemed to be concluded under the proviso to sub -section (2) of section 28 or under clause (i) of sub -section (6) of that section in respect of the goods which are not prohibited or restricted, no such fine shall be imposed :
  Provided further that, without prejudice to the provisions of the proviso to sub -section (2) of section 115, such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon.
  (2) Where any fine in lieu of confiscation of goods is imposed under sub -section (1), the owner of such goods or the person referred to in sub -section (1), shall, in addition, be liable to any duty and charges payable in respect of such goods.”

• Section 2(30) of the Motor Vehicles Act, 1988: Defines “owner” as the person in whose name a motor vehicle is registered.

  “2. Definitions. – In this Act, unless the context otherwise requires,
  x x x
  (30) “owner” means a person in whose name a motor vehicle stands registered and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire -purchase, agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement;”

Arguments

Appellant’s Submissions:

• The appellant argued that he is not the importer of the car and the liability to pay customs duty rests with the importer, not a subsequent purchaser.
• The appellant contended that he is not the ‘owner’ of the car under Section 2(30) of the Motor Vehicles Act, 1988, as the car was not registered in his name. Therefore, he cannot be held liable under Sections 124 and 125 of the Customs Act, 1962.
• The appellant submitted that the initiation of proceedings against him was flawed because he was not the owner in the eyes of law.

Respondent’s Submissions:

• The respondent argued that the appellant was the owner of the vehicle as he had purchased it and was in possession of the vehicle when it was seized.
• The respondent contended that under Section 125 of the Customs Act, 1962, the appellant was liable to pay the differential customs duty as he had exercised the option to redeem the goods.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues but the core issue was:

• Whether the appellant, a subsequent purchaser of an imported car, could be held liable for customs duty under the Customs Act, 1962, when the duty was not paid by the original importer.
• Whether the appellant can be considered the ‘owner’ of the vehicle under the Customs Act, 1962.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following legal provisions:

• Section 2(26) of the Customs Act, 1962: Defines “importer.” The court noted that the definition includes an owner, beneficial owner, or someone holding themselves out as an importer, but only during the period between importation and clearance for home consumption.
• Section 28 of the Customs Act, 1962: Deals with recovery of unpaid duty. The court observed that this section applies to the importer and not a subsequent purchaser.
• Section 125 of the Customs Act, 1962: Provides for payment of a fine in lieu of confiscation. The court clarified that this provision applies to the owner of the goods or the person from whose possession the goods were seized, but the appellant was neither the owner nor the importer.
• Section 2(30) of the Motor Vehicles Act, 1988: Defines “owner” as the person in whose name the vehicle is registered. The court noted that the appellant was not the registered owner.

Judgment

The Court held that the appellant was not liable to pay the customs duty. The Court emphasized that the appellant was not the importer, nor was he the owner of the vehicle as defined under the Motor Vehicles Act, 1988. The Court restored the order of the Appellate Tribunal and quashed the proceedings against the appellant.

How each authority was viewed by the Court?

• Section 2(26) of the Customs Act, 1962: The Court held that the appellant did not fall within the definition of “importer” under the Customs Act, 1962.
• Section 28 of the Customs Act, 1962: The Court held that this section was not applicable to the appellant as he was not the importer.
• Section 125 of the Customs Act, 1962: The Court held that the appellant was not the owner under the Customs Act, 1962, and therefore, not liable under this section.
• Section 2(30) of the Motor Vehicles Act, 1988: The Court used this definition to determine that the appellant was not the owner of the vehicle as it was not registered in his name.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the legal definitions of “importer” under the Customs Act, 1962, and “owner” under the Motor Vehicles Act, 1988. The court emphasized that the appellant was a subsequent purchaser and not involved in the original import process. The court also noted that the appellant was not the registered owner of the vehicle under the Motor Vehicles Act, 1988.

Fact:Law Ratio

Logical Reasoning

The Court considered the argument that the appellant was in possession of the vehicle, but rejected it, stating that Section 125(1) of the Customs Act, 1962, applies to the possessor only when the owner is not known, which was not the case here.

The Court quoted the definition of “importer” under Section 2(26) of the Customs Act, 1962: “Section 2 – Definitions. – In this Act, unless the context otherwise requires, – x x x x (26) “importer”, in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner or any person holding himself out to be the importer;”

The Court also quoted the definition of “owner” under Section 2(30) of the Motor Vehicles Act, 1988: “2. Definitions. – In this Act, unless the context otherwise requires, x x x (30) “owner” means a person in whose name a motor vehicle stands registered and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire -purchase, agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement;”

The Court stated, “the very initiation of the proceedings against the appellant herein under the provisions of Customs Act by summoning him by issuance of Show -Cause Notice and subsequent seizure and confiscation of the vehicle in question are not in accordance with law and are unlawful.”

Key Takeaways

• A subsequent purchaser of imported goods is not automatically liable for customs duty evaded by the original importer.
• The definition of “importer” under the Customs Act, 1962, is specific and does not include subsequent purchasers who were not involved in the original import process.
• The “owner” of a motor vehicle is the person in whose name the vehicle is registered, as per the Motor Vehicles Act, 1988.
• Customs authorities must proceed against the original importer for unpaid duties, not subsequent purchasers, unless they meet the definition of “importer” under the Customs Act, 1962.

Directions

The Supreme Court directed that the proceedings against the appellant were quashed, but clarified that the Customs Department could proceed against the original importer, Sri Jalaludheen Kunhi Thayil.

Development of Law

The judgment clarifies that the liability for customs duty primarily rests with the importer and not a subsequent purchaser, unless the subsequent purchaser falls within the definition of “importer” under the Customs Act, 1962. This interpretation reinforces the importance of registration under the Motor Vehicles Act, 1988, in determining ownership for the purposes of customs law.

Conclusion

The Supreme Court’s decision in Nalin Choksey vs. Commissioner of Customs, Kochi, provides clarity on the definition of “importer” under the Customs Act, 1962, and the liability of subsequent purchasers for customs duty. The Court held that a subsequent purchaser who was not involved in the original import process and is not the registered owner of the vehicle cannot be held liable for customs duty evaded by the original importer. This judgment protects bonafide purchasers from being penalized for the actions of the original importer.