Case Law Details
Mohit Minerals Ltd Vs Union of India (Gujarat High Court)
In the case of Mohit Minerals Ltd vs Union of India, the Gujarat High Court delivered a judgment on the principles of natural justice in customs law, specifically regarding the finalization of a provisional duty assessment. The petition, filed by Mohit Minerals Ltd., challenged an ex parte final assessment order and a subsequent demand notice for differential duty and interest, totaling over Rs. 32 lakh.
The core of the dispute originated from an import of steam coal by Mohit Minerals in September 2017. The company filed a Bill of Entry, which was provisionally assessed by the Deputy Commissioner of Customs, Jamnagar, under Section 18 of the Customs Act, 1961. After paying the provisionally assessed duty, the petitioner was allowed to clear the cargo.
Almost two years later, in June 2021, Mohit Minerals discovered through the ICEGATE portal that the provisional assessment had been finalized ex parte back in January 2019, with an additional duty demand. They received a formal demand notice from the customs authorities in July 2021, prompting them to file a writ petition with the Gujarat High Court.
Arguments of the Parties
Petitioner’s Submissions:
Mohit Minerals, represented by advocate S.S. Iyer, argued that the final assessment was carried out without informing the company, thereby violating both the provisions of the Customs Act and the fundamental principles of natural justice. The petitioner contended that as per Section 17(5) of the Customs Act and CBEC Circular No. 17 of 2011, customs authorities were required to issue a show-cause notice and provide a personal hearing to the importer before finalizing a provisional assessment that resulted in a higher duty demand. The absence of a speaking order, which provides reasons for the assessment, was also highlighted as a critical failure. The petitioner argued that without a reasoned order, an appeal would be a futile exercise, rendering the alternative remedy under the law ineffective.
Judicial Precedent: The petitioner relied heavily on a judgment from the Bombay High Court in Zuari Agro Chemicals Ltd vs Union of India. In this similar case, the Bombay High Court had quashed a final assessment on a Bill of Entry because the Customs Department failed to follow mandatory procedures, including issuing a speaking order and granting a personal hearing. The court in that case held that the principles of natural justice must be read into the statute to prevent arbitrary orders.
Respondent’s Submissions:
The Union of India, represented by advocate Utkarsh Sharma, countered the petition by arguing that the assessment was carried out legally under the provisions of the Customs Act as they stood in 2017, when the Bill of Entry was provisionally assessed. It was submitted that the Customs (Finalization of Provisional Assessment) Regulation, 2018, which provides for more explicit procedural requirements, was not yet in force. The respondent also raised a preliminary objection regarding the maintainability of the writ petition, stating that Mohit Minerals had an alternative and efficacious remedy available by way of an appeal under Section 128 of the Customs Act.
Court’s Analysis and Decision
The Gujarat High Court, after considering the submissions, sided with the petitioner. The court found it to be an undisputed fact that the final assessment was made ex parte, without any prior communication or hearing granted to the company. The court observed that the petitioner was informed of the finalization almost two and a half years after the fact.
The court explicitly referenced and agreed with the reasoning of the Bombay High Court in the Zuari Agro Chemicals Ltd case. It reiterated the principle that, even in the absence of explicit statutory provision, the principles of natural justice mandate that an affected party be given a fair hearing and that the authority pass a speaking order with clear reasons.
The judgment emphasized that a speaking order is the “soul of orders” and is essential to ensure a sound system of judicial review. The court quoted a Supreme Court observation from Asstt. Commissioner Commercial Tax Department vs. Shukla Brothers Bombay, highlighting that failing to record reasons can prejudice the affected party and hamper the administration of justice.
The court dismissed the revenue’s argument about the inapplicability of Section 17(5) by clarifying that final assessment, even if provisionally carried out under Section 18, must ultimately comply with the procedures of Section 17. The court concluded that an appeal would be futile and not an adequate remedy in a situation where the final assessment order lacks any disclosed reasoning.
Consequently, the Gujarat High Court set aside the final assessment order dated January 2, 2019, and the subsequent demand notices. It directed the customs authorities to pass a fresh final assessment order on the Bill of Entry, but only after providing Mohit Minerals with a proper opportunity for a hearing and by issuing a speaking order with clear reasons. This entire process was to be completed within a period of twelve weeks. The court made the rule absolute, concluding the case with no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Rule returnable forthwith. Learned advocate Mr. Utkarsh Sharma waives service of notice of rule on behalf of respondent Nos. 3 and 4.
2. With regard to controversy arising in this petition being in narrow compass, with the consent of the learned advocates for the respective parties, the same is taken up for hearing.
3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the impugned final/reassessment order of Bill of Entry No. 3415030 dated 28.09.2017 and the demand notice issued by the respondent No.4-Deputy Commissioner of Customs, Customs Division, Jamnagar.
4. The petitioner imported steam coal of Indonesian origin totaling to 30720 metric ton and filed Bill of Entry No. 3415030 dated 28.09.2017 in the office of the respondent No.4 for customs clearance.
4.1 Respondent No.4-Deputy Commissioner of Customs provisionally assessed the said Bill of Entry and on payment of duty of Rs. 1,92,92,793/-, permitting the petitioner to clear the cargo out of customs charge order on 09.10.2017.
4.2 In June 2021, the authorized representatives of the petitioner-company came to know through ICEGATE portal (Indian Customs Electronic Gateway) that Bill of Entry No. 3415030 dated 28.09.2017 has been finally assessed by the respondent No.4 with further duty demand of Rs. 20,61,612/- with interest of Rs. 11,67,494/- resulting in the total demand of Rs. 32,29,106/- to be paid by the petitioner.
4.3 Respondent No.4 by letter dated 05.07.2021 informed the petitioner that the Bill of Entry was already finalized on 02.01.2019 and challan for the same was also generated on the same date for payment of differential duty. The respondent No.4 called upon the petitioner to make the payment of differential duty with applicable interest within seven days from the date of receipt of the said letter and that failure thereof would result in initiation of action as per section 142 of the Customs Act, 1961 [for short ‘the Customs Act’].
4.4 The petitioner, by letter dated 15.07.2021, requested the respondent No.4 not to take any legal action for at least 30 days for recovery of the duty. Respondent No.4, by reply dated 26.07.2021, granted time of 30 days as requested by the petitioner. The petitioner thereafter preferred this petition being aggrieved by the action of the respondent No.4 of ex parte final assessment of the Bill of Entry No. 3415030 dated 28.09.2017.
5. Learned advocate Mr. S.S.Iyer for the petitioner submitted that the petitioner was never informed by the respondent No.4 about the final assessment of the Bill of Entry, contrary to the provisions of sections 17 and 18 of the Customs Act.
5.1 It was submitted that respondent No.4 ought to have issued show-cause notice and ought to have granted personal hearing to the petitioner before final assessment of the Bill of Entry contrary to the self-assessment made by the petitioner-company during the provisional assessment in terms of section 18 read with section 17(5) of the Customs Act as explained in CBEC Circular No. 17 of 2011-Customs dated 08.04.2011.
5.2 Learned advocate Mr. Iyer referred to the provisions of sections 17 and 18 of the Customs Act and submitted that CBEC Circular No. 17 of 2011-Customs dated 08.04.2011 specifically provides that when the importer who has done self assessment and has opted for provisional assessment, such provisional assessment would be converted into re-assessment at the time of final assessment and on re-assessment of duty, the proper officer shall pass a speaking order if so desired by the importer. It was therefore submitted that the CBEC [Central Board of Excise and Customs] has issued the guidelines for providing the opportunity of hearing to the importers who have opted for provisional assessment for clearing the goods through customs by issuing show-cause notice in case of a proposal by the revenue to enhance the duty which is self-assessed by the importers during re-assessment/final assessment.
5.3 It was submitted that in absence of show-cause notice there is clear breach of provision of section 17(5) of the Customs Act and the principle of natural justice by finally reassessing the Bill of Entry ex parte resulting into excess differential duty to be paid by the petitioner with interest.
5.4 Learned advocate Mr. Iyer further submitted that exparte final assessment of the Bill of Entry in question is futile and therefore, alternative efficacious remedy available to file statutory appeal would not be adequate and efficacious remedy for the petitioner in view of the violation of the principles of natural justice by the respondent-authorities and as such, the impugned final assessment order may be quashed and set aside by remanding the matter back to the respondent No.4 to give an opportunity to the petitioner to make submission before passing the final assessment order as per the provisions of section 17(5) read with CBEC Circular No. 17 of 2011-Customs dated 08.04.2011. It was submitted that the respondent No.4 has not passed the speaking order as provided under section 17(5) of the Customs Act and hence, such order is required to be quashed and set aside.
5.5 In support of his submissions, learned advocate Mr. Iyer relied upon the decision of the Bombay High Court in case of Zuari Agro Chemicals Ltd vs. Union of India reported in 2014 (307) E.L.T. 874 wherein in similar facts, the Bombay High Court set aside the final assessment made on the Bill of Entry on the ground that there was failure on the part of the Customs Department to carry out its mandatory procedure as provided under section 17(5) of the Customs Act as no speaking order was issued to the importer so as to enable the importer to have an efficacious appeal before the Commissioner of Customs (Appeal) under section 128 of the Act. It was further held that as the Customs Department did not grant any personal hearing to the petitioner nor the petitioner was informed about the reasons for variation being made in the Bill of Entry by raising the demand on the ground on differential duty, such order is not tenable.
6. Per contra, learned advocate Utkarsh Sharma submitted that the reliance placed by the petitioner on the Circular No. 17 of 2011-Customs dated 08.04.2011 is not applicable in the facts of the case as the Bill of Entry dated 28.09.2017 was assessed under the provisions as it stood during the relevant time and there is no violation of the provision of section 17(5) and section 18 of the Customs Act. It was submitted that Bill of Entry No. 3415030 was legally assessed by following the provisions of law as stipulated under section 18 of the Customs Act as they stood during the relevant time. It was pointed out that the Customs (Finalization of Provisional Assessment) Regulation, 2018 was not in force and hence, Rule 6(3) of the said Rules is not applicable in the facts of the case as the Bill of Entry was ordered to be provisionally assessed on 09.10.2017 and the Regulation of 2018 would apply to the provisional assessment orders on or after the enforcement of the said Regulation.
6.1 It was further submitted that the petitioner has an alternative efficacious remedy under section 128 of the Customs Act by preferring an appeal before the Commissioner of Customs (Appeals) if the petitioner is aggrieved by final assessment of the Bill of Entry No. 3415030 and it is not open for the petitioner to invoke the writ jurisdiction under Article 226 of the Constitution of India. Learned advocate Mr. Sharma in support of his submissions referred to and relied upon the averments made in the affidavit-in-reply filed on behalf of the respondent Nos. 1 to 4 raising preliminary objection with regard to the maintainability of the petition as an alternative efficacious remedy is available to the petitioner.
7. Considering the rival submissions made by the respective learned advocates, it is an undisputed fact that the petitioner imported 30720 metric ton steam coal and filed Bill of Entry No. 3415030 on 28.09.2017 which was assessed provisionally under section 18 of the Customs Act. It is also undisputed that the petitioner was never informed about the final assessment/re-assessment of the said Bill of Entry and for the first time, respondent No.4 by letter dated 05.07.2021 i.e. almost after two years and six months, informed the petitioner that the Bill of Entry No. 3415030 was finalized on 02.01.2019. Thus, the respondent No.4 has made final assessment/re-assessment of the said Bill of Entry ex parte in January 2019 without affording any personal hearing to the petitioner nor any reason for the variation being made to the said Bill of Entry as filed by the petitioner was communicated. It is also undisputed that no speaking order in support of the finalized Bill of Entry which has been varied has been issued to the petitioner at any point of time.
8. In case of Zuari Agro Chemicals Ltd(supra), Bombay High Court, while dealing with the similar issue, has held as under:
“12) We have considered the rival submissions. It is an undisputed position that the petitioner imported MOP under the said bills of entry during the period 2006 to 2008. The said Bills of entry were assessed provisionally to duty under Section 18 of the Act for the reason that the petitioner was required to submit certain documents in original in support of the import of MOP. This the petitioners did in 2008 itself and sought finalization of the assessment in accordance with the claim made by the petitioner therein. However, the respondent revenue again sought the original documents in 2010. The petitioners replied to the same, pointing out that the same had been submitted and sought finalization of the bills of entry. Thereafter instead of initiating the process of finalization of the Bills of entry involving the petitioner, the respondent finalized the said Bills of entry ex parte in December 2010 to the prejudice of the petitioner. This was informed to the petitioner in May 2011. It is also undisputed that no personal hearing was granted to the petitioner nor was the petitioner informed about the reasons for the variation being made to said Bills of entry as filed by the petitioner before making the same. It is also undisputed that no speaking order in support of the finalized bills of entry which has been varied has been issued to the petitioner till date.
13) The contention of the revenue is that the Act does not require finalization of bill of entry which was originally provisionally assessed should be preceded by following the principle of natural justice. However, even if the statute does not specifically provide that the bills of entry being finalized should be preceded by issue of notice, grant of personal hearing and a speaking order in case the contention of the importer is not accepted, yet the principles of natural justice have to be read into the Stature. It is only when a party is given an opportunity to point out its case against the proposed variation that mistakes in making the assessments could be prevented as the importer may have a complete answer to the objections of the revenue. Similarly, if the authority is unable to accept the response of the importer/party then the reasons for the same can be reflected in the speaking order. The above process in finalizing the assessment of Bills of entry only ensures that no arbitrary orders are passed. Therefore, while finalizing the bill of entry for the purpose of assessment, it would be incumbent upon the Assessing Officer to inform the importer what variation he proposes to make to the Bills of entry as filed by the importer and the reasons for the same. This would give an opportunity to the importer to explain why the proposed variation in the bill of entry is uncalled for. If the explanation of the importer is accepted then the Bill of entry would be assessed in accordance with the claim made by the importer or even if not accepted, the authority would be required to give reasons in support of its conclusion. This would undoubtedly curtail/reduce unwarranted litigation. The above process of natural justice is only in compliance with elementary principles of Rule of law. The above process may not be elaborate but must meet the essence of fair play so that no person is left with a feeling of being a target of arbitrary and unfair behavior on the part of the authorities. In this case, the revenue does not dispute that while finalizing the assessment of the said bills of entry, value of imported MOP has been enhanced and the benefit of notification as claimed was not extended without giving any opportunity to the petitioner to explain away the view of the Assessing Officer. In this case the finalization of the said Bills of entry was done merely by making an endorsement on them without disclosing the reasons which led to enhancement of the value of MOP from that declared by the petitioners leading to differential duty being payable. Moreover even after having finalized the said Bills of entry there is no communication from the Assessing officer indicating the reasons for enhancing the duty payable on final assessment. In case reasons are given, it is likely that the petitioner/ importer may see merit in the same and accept it. However, in the absence of reasons, the party does not know why its contention /explanation was not acceptable. This alone prevents the authority from exercising unbridled powers in arbitrary manner while finalizing the Bills of entry arbitrarily. Therefore, we hold that the assessment of the said bills of entry are in breach of natural justice and bad in law.
14) The contention of the revenue that this Court should not entertain this petition as an alternative remedy of an appeal is available under Section 128 of the Act and the petitioner has chosen not to avail it. The said bills of entry were finalized in December 2011. The petitioner was informed of the same in May 2012. The petitioner accepted it as is evident from not having filed an appeal to the Commissioner of Customs (Appeal) or any other authority. An Appeal under Section 128 of the Act to be an efficacious appeal must be from an order with reasons. It is for this reason that Section 17(5) of the Act itself provides that on a bill of entry being assessed finally in a manner contrary to the claim of the importer, then within 15 days of making the final assessment of the bill of entry, a speaking order will be issued. In this case, there is a mere endorsement of variation on the said bill of entry and no reasons which led to the enhancement of the value have been disclosed. In the absence of reasons being mentioned on the said Bills of entry itself or by issue of a separate communication containing the reasons for the same an importer would be at loss to the manner in which the same could be challenged. In fact, in such cases an appeal to the appellate authority would be futile as it would be impossible for the petitioners to contend why the enhancement of value done by the Customs Department is unjustified and/or bad in law nor would it be possible for the appellate authority to decide on the merits of the final assessment of the bills of entry. Therefore, there has been failure on the part of the Customs Department to carry out its mandatory obligation as provided under Section 17(5) of the Act. It is only when a speaking order is issued to the importer that an efficacious appeal can be made to the Commissioner of Customs (Appeals) under Section 128 of the Act. The petitioners have correctly relied upon the decision of the Kerala High Court in HDFC Bank Ltd. Vs. Union of India 2011 (271) ELT 175 wherein it has been held that where an assessee objects to the assessment being made contrary to its claim, the Assessing Officer is obliged to issue a speaking order in terms of Section 17(5) of the Act. The Court held that it is only on passing of a speaking order that the period for filing an appeal under Section 128 of the Act commences. As the Apex Court in Asstt. Commissioner Commercial Tax Department vs. Shukla Brothers Bombay 254 ELT 16 has observed that “Reasons are the soul of orders. Non recording of reasons could lead to duel infirmities, firstly, it may cause prejudice to the affected party and secondly more particularly, hamper the proper administration of justice. These principles are not only applicable to administrative or executive actions but they apply with equal force and, in fact, with a greater degree of precision to judicial pronouncements”.
Further it quotes from H.W.R. Wade’s book
“Administrative Law, 7th Edition, as under:
“A right to reasons is therefore, an indispensable part of a sound system of judicial review. Natural justice may provide the best rubric for it, since the giving of reasons is required by the ordinary man’s sense of justice…
Reasoned decisions are not only vital for the purposes of showing the citizen that he is receiving justice they are also a valuable discipline for the tribunal itself..”
15. The objection of the revenue to invocation of Section 17(5) of the Act is that in this case the assessment was made provisional under Section 18(1) of the Act and were also being finalized under Section 18(2) of the Act. Therefore, it is submitted that Section 17(5) of the Act requiring an issuance of a speaking order will not apply. According to us any quasi judicial decision which could be subject matter of appeal would require reasons to be given. However, in this case in any view of the matter Section 18(2) of the Act at the relevant time read as “when the duty leviable on such goods is assessed finally in accordance with the Act then” certain consequences on finalization of assessment are set out. However, the final assessment of the goods which have been provisionally assessed has to be in terms of Section 17 of the Act. This is so as Section 18(2) of the Act itself does not provide for finalization of assessment but merely states the action to be taken by the Assessing Officer consequent to the finalization of provisionally assessed bill of entry under Section 17 of the Act. Thus the objection of the revenue is unsustainable.”
9. It would therefore be germane to refer to section 17(5) and section 18(1)(2) of the Customs Act which read as under:
“17. Assessment of duty.—(5) Where any assessment done under sub-section (2) is contrary to the claim of the importer or exporter regarding valuation of goods, classification, exemption or concessions of duty availed consequent to any notification therefor under this Act, and in cases other than those where the importer or the exporter, as the case may be, confirms his acceptance of the said assessment in writing, the proper officer shall pass a speaking order within fifteen days from the date of assessment of the bill of entry or the shipping bill, as the case may be].
18. Provisional assessment of duty.—
(1) Notwithstanding anything contained in this Act but without prejudice to the provisions contained in section 4 —
(a) where the proper officer is satisfied that an importer or exporter is unable to produce any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods, as the case may be; or
(b) where the proper officer deems it necessary to subject any imported goods or export goods to any chemical or other test for the purpose of assessment of duty thereon; or
(c) where the importer or the exporter has produced all the necessary documents and furnished full information for the assessment of duty but the proper officer deems it necessary to make further enquiry for assessing the duty, the proper officer may direct that the duty leviable on such goods may, pending the production of such documents or furnishing of such information or completion of such test or enquiry, be assessed provisionally if the importer or the exporter as the case may be, furnishes such security as the proper officer deems fit for the payment of the deficiency, if any, between the duty finally assessed and the duty provisionally assessed.
(2) When the duty leviable on such goods is assessed finally in accordance with the provisions of this Act, then—
(a) in the case of goods cleared for home consumption or exportation, the amount paid shall be adjusted against the duty finally assessed and if the amount so paid falls short of, or is in excess of, 1[the duty finally assessed], the importer or the exporter of the goods shall pay the deficiency or be entitled to a refund, as the case may be;
(b) in the case of warehoused goods, the proper officer may, where the duty finally assessed is in excess of the duty provisionally assessed, require the importer to execute a bond, binding himself in a sum equal to twice the amount of the excess duty. 2[(3) The importer or exporter shall be liable to pay interest, on any amount payable to the Central Government, consequent to the final assessment order under sub-section (2), at the rate fixed by the Central Government under section 28AB from the first day of the month in which the duty is provisionally assessed till the date of payment thereof.”
10. From the above provisions it is clear that the respondent authorities is required to pass a speaking order on the re-assessment within 15 days from the date of re-assessment of the Bill of Entry read with sub-section (2) of section 18 of the Customs Act.
11. The contention raised by learned advocate Mr. Sharma with regard to adhering to the provisions of sections 17 and 18 of the Customs Act by the authorities concerned, it is not in dispute that no personal hearing was granted to the petitioner and no speaking order was communicated to the petitioner at any point of time of the final assessment/re-assessment of the Bill of Entry No. 3415030 dated 28.09.2017 which is contrary to the basic principles of providing an opportunity of hearing to the petitioner when the final order of assessment results into levy of differential duty as per section 17(5) of the Customs Act with the consequences which may follow under section 18(2) of the Act.
12. Respondent-authorities therefore, ought to have granted opportunity of hearing to the petitioner and thereafter ought to have passed a speaking order as contemplated under section 17(5) of the Customs Act. We therefore, set aside the final assessment order dated 02.01.2019 passed by the respondent No.4 on the Bill of Entry No. 3415030 and consequent further notices calling upon the petitioner to pay the amount of differential duty with applicable rate of interest are also set aside. The respondents are directed to pass a fresh order of final assessment/re-assessment of the Bill of Entry No. 3415030 after giving opportunity of hearing to the petitioner by passing a speaking order, indicating to the petitioner the reasons why the Bill of Entry filed by the petitioner is not acceptable, within a period of twelve weeks from the date of receipt of this order. It would be open for the petitioner to file an appeal to the Commissioner of Customs (Appeals) under section 128 of the Customs Act if the petitioner is aggrieved by the final assessment order as may be indicated in the reasoned assessment. Rule is made absolute to the aforesaid extent. No order as to costs.
