Supreme Court clarifies the definition of “Personal Effects” under Baggage Rules in a Customs Dispute: Directorate of Revenue Intelligence vs. Pushpa Lekhumal Tolani (2017)

Date of the Judgment: 18 August 2017

Citation: (2017) INSC 716

Judges: R.K. Agrawal, J. and Prafulla C. Pant, J.

Can a tourist be penalized for carrying valuable jewellery, if it is meant for personal use and re-export? The Supreme Court addressed this question in a case involving the Directorate of Revenue Intelligence (DRI) and a tourist, Pushpa Lekhumal Tolani, who was found carrying jewellery worth Rs. 1.27 crores. The core issue was whether the jewellery could be considered “personal effects” under the Baggage Rules, 1998, and thus exempt from customs duty. The Supreme Court, in this judgment, clarified the scope of “personal effects” for tourists, emphasizing that the intent to re-export such items is key, and that newness of the items is not a bar. The judgment was delivered by a division bench comprising Justice R.K. Agrawal and Justice Prafulla C. Pant, with Justice R.K. Agrawal authoring the opinion.

Case Background

On November 19, 2002, Ms. Pushpa Lekhumal Tolani arrived at Indira Gandhi International (IGI) Airport in Delhi from London. Acting on a tip, Directorate of Revenue Intelligence (DRI) officers intercepted her as she was about to exit through the Green Channel. Upon questioning, she denied having any dutiable items. However, a search of her bags revealed 28 packages containing 44 jewellery items valued at Rs. 1.27 crores. These items were seized under Section 102 of the Customs Act, 1962. Ms. Tolani was subsequently taken into judicial custody until November 26, 2002. A show-cause notice was issued on December 12, 2002, by the DRI, asking why the seized goods should not be confiscated. The competent authority ordered absolute confiscation of new articles valued at Rs. 86,52,765 and confiscation of seized jewellery worth Rs. 40,47,235 with a redemption clause of Rs. 3,00,000 and penalty of Rs. 15,00,000 on August 14, 2003. The Additional Chief Metropolitan Magistrate, New Delhi, also found Ms. Tolani guilty under Sections 132 and 135(1)(a) of the Customs Act, 1962, sentencing her to the period already undergone and imposed a fine of Rs. 6 lakhs on September 27, 2004.

Timeline

Course of Proceedings

Ms. Tolani, aggrieved by the show-cause notice and confiscation order, filed Writ Petition (C) No. 6633 of 2003 before the High Court of Delhi. The High Court allowed the writ petition on September 13, 2006, quashing the show-cause notice and the confiscation order, and directed the release of the goods. Consequently, the Additional Sessions Judge allowed Ms. Tolani’s appeal against her conviction on April 11, 2007. The DRI filed a review petition, which was dismissed by the High Court on September 4, 2009. The DRI then appealed to the Supreme Court by way of special leave.

Legal Framework

The case primarily revolves around the interpretation of “personal effects” under the Baggage Rules, 1998. Rule 7 of the Baggage Rules, 1998, states:

“A tourist arriving in India shall be allowed clearance free of duty articles in his bona fide baggage to the extent mentioned in column (2) of Appendix E.”

Appendix E specifies that tourists are allowed to bring “used personal effects and travel souvenirs” duty-free, provided these goods are for their personal use and, if not consumed, are re-exported when they leave India. The court also considered Circular No. 72/98-Customs, dated 24/09/1998, which clarifies that personal effects include items like personal jewellery, cameras, and other personal items. The circular also mentions that while the Baggage Rules, 1994 allowed both new and used personal effects, the 1998 rules allow only used personal effects. However, it also states that it is not the intention of the Board to verify the newness of every product, as long as it is not prima facie new goods in their original packaging, which can be disposed of offhand. The court also considered Section 77 of the Customs Act, 1962, which requires passengers to declare dutiable goods.

Arguments

Arguments by the Directorate of Revenue Intelligence (DRI):

• The DRI argued that several seized items, such as gold and diamond-studded tie pins and clips, were not personal effects as they are typically not used by women.
• They contended that newly purchased, high-value items and articles belonging to others could not be considered personal effects.
• The DRI emphasized that while there is an exemption from duty on goods up to a specified value, there is no exemption from making a true declaration.
• They pointed out that Ms. Tolani had claimed a VAT refund in England, indicating an intention not to take the goods back.
• The DRI argued that Ms. Tolani attempted to smuggle the jewellery through the Green Channel and that her subsequent return to London, instead of Indonesia, contradicted her earlier claims.

Arguments by Ms. Pushpa Lekhumal Tolani:

• Ms. Tolani contended that Rule 7 of the Baggage Rules, 1998, allows tourists to bring “used personal effects” duty-free, and that the jewellery was for her personal use and meant to be re-exported.
• She argued that she did not violate Section 77 of the Customs Act, 1962, as she was not carrying dutiable or prohibited items.
• She refuted the VAT refund argument, stating that UK customs authorities confirmed that reclaiming VAT does not prohibit taking the jewellery back to the UK.
• Ms. Tolani maintained that the High Court was correct in its conclusion that the goods were personal effects for her personal use.

The core of the dispute revolved around whether the jewellery could be classified as “personal effects” under the Baggage Rules, 1998, and whether Ms. Tolani had the intention to smuggle the jewellery into India.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether, in the present facts and circumstances of the case, the show-cause notice dated 12.12.2002 and order dated 14.08.2003 are liable to be quashed or not?

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 and circulars:

• Baggage Rules, 1998: Specifically, Rule 7 and Appendix E, which define the conditions for duty-free import of personal effects by tourists.
• Circular No. 72/98-Customs, dated 24/09/1998: Clarifies the definition of “personal effects” to include items like personal jewellery, cameras, and other personal items.
• Circular No. F.No. 495/29/99-Cus-VI, dated 18th Feb, 2000: States that genuine tourists are allowed to bring in their personal effects without endorsement on passports and without payment of duty, subject to the terms and conditions prescribed in the Baggage Rules, 1998.
• Section 77 of the Customs Act, 1962: Requires passengers to declare dutiable goods, which the court found was implicitly complied with by Ms. Tolani by choosing the Green Channel.
• International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto 18.05.1973): States that a passenger going through the green channel is itself a declaration that he has no dutiable or prohibited articles.
• EXIM Code Numbers 7113 19 20 and 7113 19 30 of ITC (HS) Classification of Export and Import items as on 01.04.2002: Allows the import of gold jewellery studded with diamonds or with other precious stones.
• Section 80 of the Customs Act, 1962: Applies only to dutiable and prohibited goods, hence not applicable in this case.

The Court relied on these authorities to interpret the scope of “personal effects” and to determine whether Ms. Tolani had violated any customs laws.

Judgment

How each authority was viewed by the Court?

The court relied on the Baggage Rules, 1998, and Circular No. 72/98-Customs to define “personal effects” broadly. It used the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto 18.05.1973) to support the idea that choosing the Green Channel is a declaration of having no dutiable goods. The court also noted that EXIM Code Numbers 7113 19 20 and 7113 19 30 of ITC (HS) Classification of Export and Import items as on 01.04.2002, allows the import of gold jewellery studded with diamonds or with other precious stones, further supporting the argument that the import of jewellery was permissible. The court found Section 80 of the Customs Act, 1962 to be inapplicable as it pertains to dutiable and prohibited goods, which were not involved in this case. The court also relied on Circular No. F.No. 495/29/99-Cus-VI, dated 18th Feb, 2000 stating that genuine tourists are allowed to bring in their personal effects without endorsement on passports and without payment of duty, subject to the terms and conditions prescribed in the Baggage Rules, 1998.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of “personal effects” under the Baggage Rules, 1998, and the intention of the tourist to re-export the items. The court emphasized that the rules do not restrict the value or newness of personal effects, as long as they are for the personal use of the tourist and meant to be taken back. The court also took into account the fact that Ms. Tolani had chosen the Green Channel, which, according to international conventions, implies a declaration that she had no dutiable goods. The court also noted that the DRI’s investigation was conducted after a long delay and that Ms. Tolani had indeed returned to India after going to London.

The court’s reasoning can be summarized as follows:

The court stated:

“Insofar as the question of violation of the provisions of the Act is concerned, we are of the opinion that the respondent herein did not violate the provisions of Section 77 of the Act since the necessary declaration was made by the respondent while passing through the Green Channel.”

The court further observed:

“Further, a harmonious reading of Rule 7 of the Baggage Rules, 1998 read with Appendix E (2) (quoted above), the respondent was not carrying any dutiable goods because the goods were the bona fide jewellery of the respondent for her personal use and was intended to be taken out of India.”

The court also noted:

“The High Court was right in holding that it is not the intention of the Board to verify the newness of every product which a traveler brings with him as his personal effect. It is quite reasonable that a traveler may make purchases of his personal effects before embarking on a tour to India. It could be of any personal effect including jewellery. Therefore, its newness is of no consequence.”

The court did expunge the remarks made against the appellant by the High Court.

Key Takeaways

• Tourists can bring personal jewellery into India duty-free, provided it is for their personal use and meant to be re-exported.
• The “newness” of personal effects is not a bar, as long as they are not in their original packaging and meant for disposal.
• Choosing the Green Channel is an implicit declaration that a passenger has no dutiable goods.
• Customs authorities should not verify the newness of every product a traveler brings as personal effects, unless it is prima facie new goods in their original packaging which can be disposed of off hand.

Directions

The Supreme Court expunged the remarks made against the appellant from the judgment passed by the High Court.

Development of Law

The ratio decidendi of this case is that the term “personal effects” under the Baggage Rules, 1998, for tourists includes jewellery meant for personal use and re-export, irrespective of its value or newness, and that choosing the Green Channel is an implicit declaration of having no dutiable goods. This clarifies that customs authorities should not scrutinize the newness of every personal effect, unless there is a clear intention to dispose of the goods in India. There is no change in the previous position of law, but the judgment clarifies the interpretation of existing rules and regulations.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision to quash the show-cause notice and confiscation order. The court clarified that “personal effects” for tourists include jewellery meant for personal use and re-export, regardless of its value or newness. This judgment provides significant clarity on the interpretation of Baggage Rules, 1998, and the rights of tourists bringing personal items into India.