Supreme Court Upholds Absolute Confiscation of Illegally Imported Pulses: Union of India vs. Raj Grow Impex LLP (2021)

Date of the Judgment: 17 June 2021
Citation: (2021) INSC 378
Judges: A.M. Khanwilkar, J., Dinesh Maheshwari, J., Krishna Murari, J.

Can the government confiscate goods that were imported in violation of trade restrictions, or should importers be given a chance to pay a fine and keep the goods? The Supreme Court of India recently addressed this critical question in a case involving the illegal import of pulses. This judgment clarifies the extent of the government’s power to confiscate goods that violate import regulations.

The core issue revolves around whether goods imported in violation of government notifications restricting the import of certain pulses should be absolutely confiscated or if the importers should be allowed to release the goods upon payment of a redemption fine. The bench, comprising Justices A.M. Khanwilkar, Dinesh Maheshwari, and Krishna Murari, delivered the judgment, with Justice Dinesh Maheshwari authoring the opinion.

Case Background

The case originated from notifications issued by the Central Government under the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), which restricted the import of certain beans, peas, and pulses. These restrictions were challenged in various High Courts, with some importers obtaining interim orders allowing them to import these goods despite the restrictions. The Supreme Court, in a previous judgment (Union of India and Ors. v. Agricas LLP and Ors.), upheld these notifications, stating that imports made under interim orders were illegal and would be dealt with under the Customs Act, 1962.

Following the Agricas judgment, the respondent importers, M/s. Raj Grow Impex LLP and M/s. Harihar Collections, sought to release their impounded goods by paying a redemption fine. The Additional Commissioner of Customs initially allowed this, but the Directorate General of Foreign Trade (DGFT) objected, leading to the matter being taken to court.

The importers then approached the High Court of Judicature at Bombay, seeking a mandamus for the release of their goods. The Commissioner of Customs (Import-II) subsequently issued orders pointing out deficiencies in the initial release orders, leading to appeals before the Commissioner (Appeals). The High Court initially directed the release of the goods, but the Appellate Authority later set aside the release orders and ordered absolute confiscation. This led to the current appeals before the Supreme Court.

Timeline

Legal Framework

The judgment primarily relies on the following legal provisions:

• ✓ Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act): This section empowers the Central Government to regulate imports and exports. Sub-section (2) allows the government to prohibit, restrict, or regulate the import or export of goods. Sub-section (3) states that all goods to which an order under sub-section (2) applies shall be deemed to be goods the import or export of which has been prohibited under Section 11 of the Customs Act, 1962.
• ✓ Section 2(33) of the Customs Act, 1962: Defines “prohibited goods” as any goods the import or export of which is subject to any prohibition under this Act or any other law for the time being in force.
• ✓ Section 11(1) of the Customs Act, 1962: Empowers the Central Government to prohibit the import or export of goods by notification in the Official Gazette.
• ✓ Section 111(d) of the Customs Act, 1962: States that goods imported contrary to any prohibition imposed by or under this Act or any other law are liable to confiscation.
• ✓ Section 125(1) of the Customs Act, 1962: Provides an option to pay a fine in lieu of confiscation. It states that for prohibited goods, the officer may give an option to pay a fine, and for other goods, the officer shall give such an option.

The Court emphasized that the notifications issued under Section 3(2) of the FTDR Act, which imposed quantitative restrictions on the import of pulses, were valid and that any import in violation of these restrictions would be deemed prohibited under Section 11 of the Customs Act, 1962.

Arguments

Arguments by the Appellants (Union of India):

• ✓ The High Court erred in directing the release of goods, as the goods were imported in violation of notifications under the FTDR Act and are therefore “prohibited goods” under the Customs Act.
• ✓ The notifications imposed quantitative restrictions, and any import beyond the specified limit is prohibited.
• ✓ The importers did not act in good faith, as they imported goods under interim orders despite previous rulings against similar imports.
• ✓ Section 125 of the Customs Act distinguishes between “prohibited goods” and “other goods,” allowing discretion for absolute confiscation of prohibited goods.
• ✓ The purpose of the notifications was to protect the domestic agricultural market, and allowing the release of these goods would defeat this purpose.

Arguments by the Respondents (Importers):

• ✓ The notifications imposed only “restrictions” and not a “prohibition” on the import of pulses.
• ✓ The goods were not “absolutely prohibited” but merely “restricted,” and therefore, they should be released upon payment of a redemption fine.
• ✓ The Adjudicating Authority had the discretion to allow redemption of the goods, and the High Court rightly directed the release of the goods.
• ✓ The importers have already suffered losses due to detention and storage charges, and re-export is not a feasible option.
• ✓ The Supreme Court’s judgment in Commissioner of Customs v. Atul Automations Private Limited supports their argument that goods imported without authorization are “restricted” and not “prohibited.”

Sub-Arguments by the Parties:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the goods in question are of the ‘prohibited goods’ category?
2. Whether the goods in question are liable to absolute confiscation?
3. Legality and validity of the orders passed by the High Court

Treatment of the Issue by the Court

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

Authorities

The Supreme Court relied on the following authorities:

Judgment

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

How each authority was viewed by the Court?

✓ Union of India and Ors. v. Agricas LLP and Ors. [CITATION]: The Court upheld the validity of the notifications and stated that imports under interim orders were illegal.

✓ Sheikh Mohd. Omer v. Collector of Customs, Calcutta and Ors. [CITATION]: The Court reiterated that “any prohibition” includes restrictions, and any violation of import regulations amounts to a prohibition.

✓ Commissioner of Customs, New Delhi v. Brooks International & Ors [CITATION]: The Court highlighted that if conditions for import or export are not complied with, the goods are considered prohibited.

✓ Om Prakash Bhatia v. Commissioner of Customs, Delhi [CITATION]: The Court noted that goods exported in violation of conditions are considered prohibited.

✓ Garg Woollen Mills (P) Ltd. v. Addl. Collector of Customs, New Delhi [CITATION]: The Court cited this to support that absolute confiscation is justified in cases involving fraud and violation of import regulations.

✓ Sant Raj and Anr. v. O.P. Singla and Anr. [CITATION]: The Court used this to highlight that discretion must be exercised reasonably and not arbitrarily.

✓ Reliance Airport Developers (P) Ltd. v. Airports Authority of India and Ors. [CITATION]: This case was used to emphasize that discretion must be exercised judiciously.

✓ Hargovind Das K. Joshi and Ors. v. Collector of Customs and Ors. [CITATION]: The Court stated that the Adjudicating Authority must consider the option of redemption with fine, but this case did not support the importers’ claim for mandatory redemption.

✓ Commissioner of Customs v. Atul Automations Private Limited [CITATION]: The Court distinguished this case, stating that it was not applicable to the present case as the goods in Atul Automations were not prohibited.

✓ Shri Amman Dhall Mill v. Commissioner of Customs [CITATION]: The Court followed the Kerala High Court’s decision, which upheld absolute confiscation of similar goods.

✓ P.T.R. Exports (Madras) Pvt. Ltd. and Ors. v. Union of India and Ors. [CITATION]: The Court stated that an applicant has no vested right to have export or import licence.

✓ S.B. International Ltd. and Ors. v. Asstt. Director General of Foreign Trade and Ors. [CITATION]: The Court held that authorities have to satisfy themselves that the application satisfies all the requirements of the scheme and the applicable laws.

✓ U.P. State Road Transport Corporation and Anr. v. Mohd. Ismail and Ors. [CITATION]: The Court stated that it cannot direct the statutory authority to exercise the discretion in a particular manner not expressly required by law.

✓ Assistant Commissioner (CT) LTU, Kakinada and Ors. v. Glaxo Smith Kline Consumer Health Care Limited [CITATION]: The Court stated that it cannot render the statutory provision otiose.

✓ Films Rover International Ltd. and Ors. v. Cannon Film Sales Ltd. [CITATION]: The Court stressed on the principle that the court should take whichever course appears to carry the lower risk of injustice.

✓ Dorab Cawasji Warden v. Coomi Sorab Warden and Ors. [CITATION]: The Court stated that such injunctions are granted to preserve or restore the status quo and that the court should weigh the risk of injustice.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the need to protect the domestic agricultural market and uphold the government’s policy on import restrictions. The Court emphasized that the importers had acted for personal gain and had not acted in good faith, as they were aware of the restrictions. The Court also highlighted the importance of adhering to statutory provisions and the purpose behind them. The Court’s reasoning was also based on the need to prevent the Indian markets from being flooded with excessive quantities of imported pulses, which would have adverse effects on farmers.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

Key Takeaways

• ✓ Goods imported in violation of trade restrictions, particularly those imposed under the FTDR Act, are considered “prohibited goods” under the Customs Act.
• ✓ The Adjudicating Authority has the discretion to order absolute confiscation of such goods, especially when the imports are not bona fide and are against national economic interests.
• ✓ The Supreme Court emphasized the need to protect the domestic agricultural market and upheld the government’s policy on import restrictions.
• ✓ Importers cannot claim equity when they have acted in violation of the law.
• ✓ Interim orders of High Courts should be passed with due regard to the implications on the national economy and statutory provisions.
• ✓ The judgment sets a precedent for strict enforcement of import restrictions and highlights the importance of adhering to legal provisions and policy objectives.

Directions

The Supreme Court directed the following:

• ✓ The High Court orders for release of goods are set aside.
• ✓ The orders of the Appellate Authority for absolute confiscation are approved.
• ✓ The importers are given two weeks to opt for re-export of the goods, subject to payment of redemption fine and other statutory obligations.
• ✓ If no re-export option is exercised, the goods shall stand absolutely confiscated.
• ✓ The respondent-importers are to pay costs of litigation to the appellants, quantified at Rs. 2,00,000/- each.
• ✓ The matters relating to the interveners shall also be governed by the findings of this judgment and appropriate orders in their regard shall be passed by the authorities/Courts, wherever their matters are pending.