Right rate of Customs Duty for smuggled goods

This was never an issue. This has now become an issue only after a Supreme Court judgment delivered on 9th December 2010 and reported in 2010(260)ELT487(SC) in the case of Commissioner of Customs (Prev.) Mumbai vs. M Ambalal & Co Supreme Court has said in this case that smuggled goods confiscated and redeemed on payment of fine in lieu of confiscation would not be allowed to avail of an exemption beca-use the goods are ‘smuggled goods’ and therefore are not ‘imported goods’. The Court said the following: “We are of the view that smuggled goods will not come within the definition of imported goods for the purpose of the exemption notification, for the reason, the Act defines both the expressions looking at the different definitions given to the two classes of goods: imported and smuggled, and we are of the view that if the two were to be treated as the same, then there would be no need to have two different definitions”.

 

I beg to respectfully disagree with this conclusion of the Supreme Court. My basic proposition is that smuggled goods are very much imported goods and exemption is available to them once they are confiscated and redeemed on payment of fine in lieu of confiscation. My arguments are the following:

i) The argument of the Supreme Court is that the smuggled goods are not imported goods because smuggled goods have been defined in Section 2(39) and imported goods have been defined in Section 2(25). This argument is not correct according to me. Smuggled goods are also imported goods. The definition of imported goods is “any goods brought into India from outside India”. Even smuggled goods are, therefore, imported goods. Smuggled goods are a subset of imported goods. It is one type of imported goods.

ii)The Customs Act (No. 52 of 1962) declares in the very first sentence, ‘An Act to consolidate and amend the law relating to customs”. The taxable event in Customs is the act of importation (In re. Sea Customs Act, 1878 reported in 1963 AIR SC 1760 and 1964(3) SCR 787 at 822). Therefore if there is no act of importation in the case of smuggled goods, the Customs Act cannot apply.

iii) If smuggled goods do not come under the Customs Act, the question of charging any rate of duty cannot arise. Even the tariff rate will not come under operation, if the Customs Act does not apply. Section 15 of the Customs Act lays down three different circumstances for determining the rate of duty. (a) is about the goods for which bills of entry are filed for home consumption. (b) is about warehoused goods. (c) is about any other goods. It is the (c) which accounts for any other types of goods including those which are smuggled, seized, confiscated, redeemed and released on payment of fine in lieu of confiscation.

iv. Once the smuggled and confiscated goods are redeemed on payment of fine in lieu of confiscation, they are no longer smuggled goods. This is a fundamental point of law.

v) It is an ancient practice in all the Custom Houses to allow the confiscated and released goods to pay the effective rate along with the exemption. In regular cases of importation such as when resin is imported but the license is for rubber, it is smuggling according to the definition in Customs Act. If the resin is released on fine in lieu of confiscation, the exempted rate is always allowed. This particular case which went to the Supreme Court is an exception to the practice of the Custom Houses. It is an accepted principle of interpretation that a principle which is well settled should not be tampered with lightly. (CIT vs. Malhotra – 1971(2) SCC 5471).

The CBEC should, therefore, consider filing an appeal before a Division Bench of the Supreme Court. Since the case has been remanded by the Supreme Court to the Tribunal, the CBEC may put up the correct legal position before the Tribunal.

Email: smukher2000@yahoo.com