Supreme Court clarifies settlement under Customs Act for goods seized: Yamal Manojbhai vs. Union of India (2023)

Introduction

Date of the Judgment: 04 May 2023
Citation: 2023 INSC 498
Judges: Krishna Murari, J. and Sanjay Karol, J. (Divergent Opinion)
Can a person caught smuggling goods seek settlement under the Customs Act, 1962, even if the goods are listed under Section 123 of the Act? The Supreme Court of India recently addressed this crucial question in a case involving an NRI arrested for attempting to smuggle high-value goods. This judgment clarifies the scope of settlement provisions under the Customs Act and their applicability to individuals caught with specific types of contraband. The bench comprised Justice Krishna Murari, who authored the majority opinion, and Justice Sanjay Karol, who wrote a dissenting opinion.

Case Background

The petitioner, a Non-Resident Indian (NRI), was arrested on 04 October 2022 at Delhi International Airport. The customs authorities alleged that he attempted to smuggle high-value goods, mainly watches, through the green channel to evade customs duty. Upon a detailed examination, seven wristwatches and other high-value goods were recovered from his possession. Consequently, he was arrested on 05 October 2022 for offences under Sections 132 and 135 of the Customs Act, 1962. The petitioner, being an NRI, was unable to travel outside India since 06 October 2022. He sought to settle the dispute by approaching the Settlement Commission under Section 127 of the Customs Act, offering to pay the dues and accrued interest. However, the customs authorities had not initiated the settlement process, leading the petitioner to file an application seeking directions for the same.

Timeline

Course of Proceedings

Initially, the petitioner filed an application seeking permission for home-cooked food. Subsequently, the petitioner sought to initiate settlement proceedings. The Supreme Court passed an ex-parte order on 20 February 2023, directing the Commissioner of Customs to issue a show-cause notice to initiate settlement. However, the respondent filed an application to recall this order, raising objections about the Settlement Commission’s jurisdiction. After hearing both parties, the ex-parte order was recalled on 20 February 2023. During subsequent arguments, the petitioner highlighted a conflict between judgments of the Bombay High Court and the Delhi High Court on the issue of settlement for goods listed under Section 123 of the Customs Act. The matter was then argued on merits, and judgment was reserved.

Legal Framework

The core of the dispute revolves around the interpretation of two key provisions of the Customs Act, 1962:

• Section 123 of the Customs Act: 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 Act 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.
  
  (2) This section shall apply to gold 2[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: This section provides for the settlement of cases before adjudication. However, it includes a proviso that bars applications for settlement in relation to goods to which Section 123 applies.
  
  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:

The interplay between these sections determines whether a person caught with goods listed under Section 123 can seek settlement under Section 127B of the Customs Act. The court also noted that the Customs Act aims to prevent smuggling and protect revenue, while also providing a mechanism for settlement to encourage compliance.

Arguments

Petitioner’s Arguments:

• The petitioner argued that the bar under Section 127B of the Customs Act should not apply in cases where the goods are seized within the customs area, and the origin of the goods is not in dispute.
• The petitioner relied on the judgment of the Bombay High Court in Union Of India vs Suresh Raheja & Ors [2011 (267) E.L.T. 487 (Bom.)], which held that if an accused is caught within the customs area, the bar on Section 127 of the Customs Act on goods mentioned under Section 123 of the same Act is redundant, and the accused is entitled to the remedy of settlement. The petitioner contended that since the goods were seized within the customs area, and the origin was not in dispute, the bar under Section 127B should not apply.
• The petitioner further argued that the legislative intent is to allow settlement and not to rigidly construe beneficial provisions.

Respondent’s Arguments:

• 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 relied on the judgment of Additional Commission of Customs vs Ashok Kumar [2016 (336) E.L.T 224 (Del)], where the Delhi High Court made a passing reference stating that the goods found on the person of the petitioner, since they did not find mention under Section 123 of the Customs Act, were not barred by Section 127 of the same Act.
• The respondent argued that any person importing goods at the instance of another person is a smuggler, and as such, the Settlement Commission cannot be approached.
• The respondent also raised a preliminary objection stating that since the original relief sought was limited to the grant of providing home-cooked meals to undertrial prisoners, this court is not the appropriate forum to decide on the present question of law.

Issues Framed by the Supreme Court

The Supreme Court framed the following key 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 would be appropriate?

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court approved and followed the Bombay High Court’s judgment in Union Of India vs Suresh Raheja & Ors [2011 (267) E.L.T. 487 (Bom.)], holding that the bar on settlement under Section 127B does not apply when goods are seized within the customs area and the origin of the goods is not in dispute.
• The Supreme Court distinguished the Delhi High Court’s judgment in Additional Commission of Customs vs Ashok Kumar [2016 (336) E.L.T 224 (Del)], noting that it made a passing reference and did not directly address the issue of goods under Section 123.
• The Supreme Court mentioned the Delhi High Court judgments in Additional Commissioner of Customs v. Ram Niwas Verma [2015 SCC Online Del 11542], Commissioner of Customs v. Avinash Dawar & Anr [2015 SCC Online Del 13875], and Commissioner of Customs v. Jyotsana Chikersal & Anr [2019 SCC Online Del 6574] as cases where a contrary view was taken.
• The Supreme Court approved and followed the Bombay High Court’s judgment in Tata Teleservices (Maharashtra) Ltd vs Union Of India [2006 (201) ELT 529 (Bom)], giving an expansive interpretation of “or otherwise” in Section 127B.
• The Supreme Court relied upon its judgment in Lilavati Bai v. State Of Mysore [AIR 1957 SC 521] to give an expansive interpretation of “or otherwise” in Section 127B.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors:

• The court emphasized the importance of protecting the fundamental rights of accused persons, including the right to a dignified life without fear of incarceration.
• The court noted the need to resolve the ambiguity caused by conflicting decisions of High Courts, which could lead to differential outcomes for similarly situated persons.
• The court highlighted the purpose of the Settlement Commission, which is to help the government reclaim tax amounts and incentivize compliance.
• The court reasoned that the burden of proof under Section 123 becomes redundant when goods are seized within the customs area, as there is no reasonable possibility of the accused being innocent.
• The court interpreted the green channel entry as a declaration of “Nil” dutiable goods under Section 77 of the Customs Act.
• The court gave an expansive interpretation of “or otherwise” in Section 127B, holding that the Settlement Commission can be approached even in cases of smuggling.

Fact:Law Ratio

The court’s decision was primarily driven by legal considerations (70%), focusing on the interpretation of the Customs Act and relevant precedents. Factual aspects of the case (30%), such as the seizure of goods within the customs area, also played a role in the court’s reasoning.

Logical Reasoning:

Judgment

The Supreme Court, in its majority opinion authored by Justice Krishna Murari, held that the bar under Section 127B of the Customs Act does not apply to goods seized within the customs area when the origin of the goods is not in dispute. The court reasoned that in such cases, the burden of proof under Section 123 becomes redundant, making the bar under Section 127B inapplicable. The court approved the Bombay High Court’s view in Suresh Raheja case. The court also clarified that a non-declaration of goods under Section 77 does not bar settlement, as an entry through the green channel implies a declaration of “Nil” dutiable goods.

The court further held that the Settlement Commission can be approached even in cases of smuggling, giving an expansive interpretation of “or otherwise” in Section 127B. The court rejected the respondent’s preliminary objection regarding the maintainability of the petition, stating that the court can go beyond the original relief to meet the ends of justice.

Justice Sanjay Karol dissented, holding that Section 127B of the Act would not apply for settlement in respect of the goods enumerated under Section 123. He also stated that the petitioner has not exhausted the appropriate alternative remedies and that the present application is liable to be dismissed on maintainability.

Key Quotes from the Judgment:

• “Such a right, if it remains under a cloud of ambiguity, may not only cause damage to the fundamental rights accrued to accused persons to live a dignified life without fear of incarceration, and may needlessly force certain accused persons to be deprived of a free life outside the languish of custody.”
• “Since the discharge of burden proof, rather, the question of burden of proof itself becomes redundant in cases of seizures within the customs area, by default, the provision that mandates such a task also becomes redundant.”
• “Therefore, in light of the above discussion, we see no reason as to why such a person cannot opt for a statutory remedy of settlement, and therefore reject the objection of the respondents in this regard.”

Key Takeaways

• Individuals caught with goods listed under Section 123 of the Customs Act can seek settlement under Section 127B if the goods are seized within the customs area and the origin of the goods is not in dispute.
• A non-declaration of goods under Section 77 of the Customs Act does not bar settlement if the individual enters through the green channel.
• The Settlement Commission can be approached even in cases of smuggling.
• The Supreme Court has clarified the ambiguity caused by conflicting decisions of High Courts on this issue.
• This judgment provides relief to individuals who are caught with goods within the customs area and are willing to settle the dispute by paying the duty and interest.

Directions

The Supreme Court directed that if an application for settlement is filed by the petitioner, the same shall be dealt with by the Settlement Commission on its own merits and in accordance with law. The court also observed that the Settlement Commission can seek further reports from the “Commission (Investigation)” even after the issuance of a show-cause notice.

Specific Amendments Analysis

There is no specific amendment discussed in this judgment.

Development of Law

The ratio decidendi of this case is that the bar under Section 127B of the Customs Act does not apply to goods seized within the customs area when the origin of the goods is not in dispute. This judgment clarifies the scope of settlement provisions and provides relief to individuals caught with goods within the customs area. It also settles the conflict between the Bombay High Court and the Delhi High Court on this issue.

Conclusion

The Supreme Court’s judgment in Yamal Manojbhai vs. Union of India clarifies that individuals caught with goods listed under Section 123 of the Customs Act can seek settlement under Section 127B if the goods are seized within the customs area and their origin is not in dispute. This decision ensures that individuals are not denied the benefit of settlement based on technicalities and promotes a more equitable application of the Customs Act. The judgment also resolves the conflict between different High Court views on this issue, providing much-needed clarity.

Category

• Customs Law
  • Section 123, Customs Act, 1962
  • Section 127B, Customs Act, 1962
  • Settlement Commission
  • Smuggling
  • Customs Duty
  • Green Channel
• Criminal Law
  • Customs Act, 1962
• Indian Constitution
  • Article 32, Constitution of India
  • Fundamental Rights
• Customs Act, 1962
  • Section 123, Customs Act, 1962
  • Section 127B, Customs Act, 1962

FAQ

Q: What does this judgment mean for individuals caught with smuggled goods at the airport?

A: If you are caught with goods listed under Section 123 of the Customs Act (like gold or watches) within the customs area, and the origin of the goods isn’t in dispute, you can now seek settlement under Section 127B of the Act. This means you may be able to avoid prosecution by paying the required duty and interest.

Q: What if I entered through the green channel? Does that mean I cannot seek settlement?

A: No. The Supreme Court has clarified that entering through the green channel implies a declaration of “Nil” dutiable goods. Therefore, you are not barred from seeking settlement if you are caught with dutiable goods after entering through the green channel.

Q: Can I seek settlement if I was smuggling goods for someone else?

A: Yes. The Supreme Court has given an expansive interpretation of “or otherwise” in Section 127B, meaning that the Settlement Commission can be approached even in cases of smuggling.

Q: What should I do if I am caught with dutiable goods?

A: If you are caught with dutiable goods, you should seek legal advice immediately. You may be able to approach the Settlement Commission to settle the dispute by paying the duty and interest. This judgment has clarified the position of law and will help you in getting the benefit of settlement.

Q: How does this judgment change the previous understanding of the law?

A: Previously, there was a conflict between the Bombay High Court and the Delhi High Court on whether settlement was available for goods under Section 123. The Supreme Court has now clarified that settlement is available if the goods are seized within the customs area and the origin of the goods is not in dispute. This judgment has resolved this conflict.