Case Law Details
Hazel Mercantile Ltd. Vs Chief Commissioner of Customs (Gujarat High Court)
We find from the records of the case is that the though it is a stand of the Union of India that there can be no provisional release of goods pending seizure for which reliance is placed on a decision in the case of Raj Grow Impex (supra) by the respondent counsel Shri Devang Vyas and also a decision from which Mr. Nankani draws support. The correspondence indicates that letters for provisional release and communications inter-se dated 28.02.2021, 16.04.2021, 04.05.2021 and 12.05.2021 made to the Principal Commissioner of Customs, Kandla are pending. No final decision on provisional release has yet been taken on these applications of the Petitioner.
The exercise of seizure is an interim measure pending investigation. What is evident from the affidavit-in-reply filed by the investigating agency is that based on the statements recorded under Section 108 of the Customs Act, 1962, the investigation is pending. Reading of the provisions of the Customs Act, 1962 Sections 111 and 112 which provide for confiscation of goods post an investigation, the authorities are required to issue a show-cause notice under Section 124 of the Customs Act, 1962 before confiscation of goods. That stage has yet not reached.
The entire issue of the seizure memo being disputed on the basis of test reports essentially being in the realm of disputed questions of facts we do not propose to exercise jurisdiction under Article 226 of the Constitution of India in favour of the petitioner and entertain the petition in context of the prayers made herein. We leave it at this stage for the petitioner to press for the applications for provisional release made under Section 110 the Customs Act, 1962 and direct the respondents to decide the applications so made pending before it, in accordance with law within a period of four weeks from the date of receipt of a certified copy of this order.
FULL TEXT OF THE GUJARAT HIGH COURT ORDER /JUDGEMENT
The petitioner M/s. Hazel Mercantile Ltd., a Company incorporated under the Companies Act, 1956, has filed this petition, invoking Article 226 of the Constitution of India for the following prayers:
“52. The Petitioner therefore prays that:
(A). That direction may be given to quash the illegal seizure memo dated 26.2.2021 issued by the Respondent No.2 and declare the seizure of the imported goods as illegal, and unauthorized by law:
(B).That direction may be given to the Respondents to release the subject goods without any condition with immediate effect as per the Fresh Test Report analyzed by the Indian Institute Of Petroleum in respect of the sealed Sample No.5 and the Test Report analyzed by the Geo-Chem Laboratories Private Limited in respect of the Sealed Sample No.4 and it may be declared that the Seizure Memo issued by the respondent should be declared as null and void in the interest of justice.
(C). That the Test Report submitted by the Geo-Chem Laboratories and Indian Institute Of Petroleum Dehradun in respect of the Sealed Sample No.4 and 5 which confirms that the subject goods are Naptha should be declared as a valid test report in the interest of justice.”
2. The facts in brief are as under:
2.1 It is the case of the petitioner that it entered into contract with Aureole Trading (U.A.E) for supply of product Naphtha. The shipment of Naphtha was loaded from the port at Oman and was imported at the port Kandla. As per the Contract the subject goods were shipped through Delta Shipping And Trading LLC on Vessel MT Tuna vide 7 Bills of Lading.
2.2 The case of the petitioner is that prior to exporting the concerned consignment of Naphtha from the Port at Oman the subject goods were tested and a Certificate of Quality was given by Muscat International Shipping & Logistics certifying that this consignment was of Naphtha.The vessel thereafter arrived at Kandla .
2.3 It is the case of the petitioner that once the consignment arrived at the Kandla Port vide Bills of Entry dated 06.02.2021, a test was carried out by the Custom House, Kandla. According to the petitioner, the report concluded that the sample was composed of mixture of hydrocarbons having certain qualities. The test report was for carrying out a test as to whether the goods were Naphtha or others.
2.4 The Director of Revenue Intelligence at Gandhidham issued a Seizure Memo under Section 110 of the Customs Act, 1962, seizing the goods under the provisions of the Act. Briefly stated the case of the authorities is that the goods that were imported purportedly as Naphtha, on examination at the Custom House Laboratory at Kandla were found to be “ Natural Gasoline Liquid”. In the opinion of the authorities it appears that the imported goods have been mis-declared and mis-classified as Naphtha instead of Natural Gasoline Liquid, which according to the authorities is covered under CTH No. 27101290 and can only be imported by State Trading Enterprises in view of the Foreign Trade Policy. The petitioner not being an importer holding the status of a State Trading Enterprise, could not have imported Natural Gasoline Liquid.
2.5 The case of the petitioner is that subsequent to the test report by the Custom House, Kandla, on 15.02.2021, a report of TUV India Private Limited, a petroleum chemical and gas testing laboratory at Jamnagar was obtained. By its report dated 22.02.2021the report confirmed that the goods that were shipped were Naphtha.
2.6 Representations were made from time to time for provisional release of goods and for re-testing. The case of the petitioner was that the sample be re-tested as according to the perception of the petitioner it was Naphtha and not Natural Gasoline Liquid. The Petitioner relied upon the Report dated 22.2.2021 and requested for a re-test on the ground that the Custom House Report was unreliable and inconclusive.
2.7 The petitioner approached this Court by filing Special Civil Application No. 4803 of 2021 with the prayers for provisional release etc., However the Counsel confined the Petition only to the limited request that the respondents may get a retesting carried out after drawing fresh samples from the seized goods which are in the custody of the department. The Court disposed of the petition directing that let a fresh application be filed by the petitioner before the competent authority for drawing samples and thereafter retesting be carried out from the different laboratories at the choice of the department as also the petitioner. Armed with this order, the petitioner got Sample 4 re-tested at Geo Chem Laboratories Private Limited which by its report dated 11.05.2021 confirmed that the goods were “Naphtha”. The Sample 5 was tested at the Indian Institute of Petroleum (IIPM) and according to the report of the IIPM, dated 22.2.2021 the conclusion was that the Naphtha sample falls under light naphtha range.
2.8 The petitioner accordingly made a representation to the Chairman of the Central Board of Indirect Taxes and Customs that the laboratory report of the Custom House Laboratory dated 15.02.2021 was inconclusive. That though the authorities claimed that the subject goods were “Natural Gasoline Liquid” the scope of the test was to find out whether the sample falls under the category of light solvents such as Light Naphtha etc. The case of the petitioner before the CBIC was that “Natural Gasoline Liquid” has been omitted from Chapter 27 of the Customs Tariff Act, 1975 hence the seizure memo classifying the subject goods as Natural Gasoline was illegal in view of the Test Reports of Geo-Chem and IIPM. The goods therefore need not be detained by the Customs Authorities at Kandla and be forthwith released or at least be provisionally released subject to further investigation.
3. Mr. Vikram Nankani, learned Senior Counsel assisted by Mr. Gaurav Mehta and Mr. Nimesh Mehta, learned counsels for the petitioner have made the following submissions:
3.1 That the Seizure Memo effected on the ground that the goods have been mis-declared as Naphtha, is based on the opinion of the Chemical Examiner of the Customs House Laboratory. According to Mr.Nankani, learned Senior Counsel, except for the opinion of the Chemical Examiner, there is no sufficient cause or material to seize the goods. There has to be reason to believe that the seized goods are prohibited goods.
3.2 With regard to the expert opinion of the Chemical Examiner, Mr. Nankani, learned Senior Counsel, would submit that the report is irrerlevant and or unreliable. The report concluded that the consignment was a “Mixture of Hydrocarbons”. He would submit that on reading the letters dated 16.02.2021 and 17.02.2021, it is evident that a clarification was sought in respect of the test report dated 15.02.2021. The clarification was sought only in the context of the goods being Naphtha and not on the ground that the subject goods were Natural Gasoline Liquid. He would submit that therefore the letter dated 19.02.2021 of the Chemical Examiner that the consignment is Natural Gasoline Liquid is without any technical literature or if there is any such literature it is undisclosed.
3.3 Mr. Nankani, learned Senior Counsel, would further submit that the seizure memo is bad inasmuch as the only material available with the DRI was “opinion” of the Chemical Examiner based on an inconclusive Test Report.
3.4 He would submit that now based on the reports of the Geo Chem Laboratory, dated 11.05.2021, and that of the IIPM an accredited laboratory under the Council of Scientific & Industrial Research dated 18.05.2021 it was undisputed that the goods imported were in fact “Naphtha”. It was in this context that Mr.Nankani, prayed that the seizure memo be quashed and set aside and the goods be released forthwith. He would submit that a fresh contract of re-export has been entered into for which remittance of an amount is received which requires that the goods be released forthwith for re-export.
3.5 Mr. Nankani would further submit that having regard to the legislative history CTH 27101290 is a residuary entry “others” which does not cover Natural Gasoline Liquid. Prior to the year 2019 CTH 27101220 specifically covered Natural Gasoline Liquid. With the introduction of the Finance Bill of 2019 and as a result of the amendment with effect from 1.1.2020 the heading 2710 per se was restructured CTH 27102111 TO 13. He would therefore submit that the entry 271012910 remained unchanged meaning thereby that it never included Natural Gasoline Liquid.
3.6 In context of substitution of entries and it relating back to the original entry, Mr. Nankani, learned Senior Counsel, relied on the decison of the Supreme Court in the case of Zile Singh vs. State of Haryana reported in (2004) 8 SCC 1 and in the case of Govt. of India vs. Indian Tobacco Association reported in (2007) 7 SCC 396. On merits Mr. Nankani relied on a decision in the case of Dunlop India Ltd vs. Union of India reported in (1976) 2 SCC 241 submitting that where there is a reasonable claim to be classified under a specific entry in the tariff, it will be against the very principle of classification to deny it the parentage and fine it on the orphanage of a residuary entry, in this case entry 27101290.
4. Mr. Devang Vyas, learned ASG, reading the seizure memo would submit that in view of a categorical test report dated 15.02.2021 and a subsequent letter dated 19.02.2021, which clearly opined that the sample drawn from the subject imported goods was Natural Gasoline Liquid, there was no reason to doubt the fact that the authorities had reason to believe that the goods imported were misdeclared and misclassified.
4.1 He would further submit that a re-test report dated 28.05.2021 of CRCL, New Delhi, carried out pursuant to the order of the High Court would indicate that the goods imported were Natural Gasoline Liquid.
4.2 He would extensively rely on the averments made in the affidavit- in-reply filed by the Assistant Director, Directorate of Revenue Intelligence and submit that based on the preliminary investigation of the DRI, there is a clear suggestion that the goods, their nature and description, their country of origin, details of shipper etc., were manipulated.
4.3 With regard to the submission on accepting the test reports annexed by the petitioner in support of his case that the subject goods were Naphtha, Mr Vyas would submit that these test reports were of two different laboratories and were not reliable and maintainable, inasmuch as, they were influenced by the parameters suggested in them, the reports are contradictory to each other that these reports do not specifically deny that the goods are not Natural Gasoline Liquid, the test report of 28.05.2021 of the CRCL New Delhi is specific and conclusive.
4.4 With regard to the dispute regarding the entry classification whether it is one under CTH 27101290, Mr.Vyas, learned ASG, would submit that as per the revised entry in chapter 27 of the Customs Tariff Act ITC Classification, the goods are undisputedly classifiable under the residual entry “others”. He would submit that the HSN Code has no statutory support. There is no specific entry for the goods being described as “Natural Gasoline Liquid” in the Customs Tariff Act.
4.5 Mr.Vyas, learned ASG, would submit that as recorded in the Seizure Memo, the import of subject goods is restricted. They are imported in violation of the provisions of the Foreign Trade Policy and in violation of the provisions of Section 3(5) of the Foreign Trade (Development & Regulation Act, 1992) r/w Section 11 of the said Act. In terms of Section 2(33) of the Customs Act, 1962, the goods imported are prohibited goods and are liable to confiscation.
4.6 Mr.Vyas, learned ASG, in support of his submission relied on the decision in the case of Union of India vs. M/s. Raj Grow Impex LLP & Ors., (Civil Appeal Nos. 2217-2218 of 2021) decided by the Supreme Court on June 17, 2021. With regard to the contention of Mr.Nankani, learned Senior Counsel, on the issue of the seizure being not by a proper officer in view of the decision of the Supreme Court in the case of Canon India Pvt Ltd vs. Commissioner of Customs, Mr.Devang Vyas, learned ASG, would dispute this proposition and would submit that he would, if called upon, to distinguish the judgment of the Supreme Court,would do so.
4.7 Mr.Devang Vyas, learned ASG, would also submit that the petition is premature. The applications for provisional release made by the petitioner under Section 110A of the Customs Act, 1962, are yet pending and the petition, therefore, need not be entertained.
5. Having considered the submissions made by the learned counsels for the respective parties and having heard Mr. Vikram Nankani, learned Senior Counsel for the petitioner and Mr. Devang Vyas, learned ASG for the respondents, we propose to hold as under:
(i) Reading of the prayers made by the petitioner what is evident is that in exercise of its powers under Article 226 of the Constitution of India, the petitioner wants this Court to quash and set aside the Seizure Memo dated 26.02.2021. Essentially in support of this prayer, consequential prayers have been made, that in view of the test reports dated 11.05.2021 of the Geo Chem Laboratory and that of the Indian Institute of Petroleum dated 18.05.2021 in respect of samples 4 and 5 respectively which confirmed that the subject goods are Naphtha, such test reports be declared as valid test reports and the seizure memo be set aside.
(ii) In other words, what the petitioner wants this Court to hold, is to weigh the validity of various reports i.e. the test reports on record submitted on behalf of the petitioner and on behalf of the respondents and based on the scientific analysis hold the test reports in favor of the petitioner as a valid test report. The question is whether this Court in exercise of powers under Article 226 can undertake such an exercise.
(iii) Before the goods were imported into the country at the port Kandla, the case of the petitioner is that it has a Certificate of Quality issued by the Muscat International Shipping & Logistics, confirming that the sample to be shipped through the vessel MV TUNA was Naphtha.
(iv) It is evident that when the goods were imported through the Bills of Lading and the Bills of Entry, on record is a report bearing No. 6454 dated 15.02.2021 of the Customs House, Kandla, wherein the Chemical Examiner in response to his scope of investigation whether the product is Naphtha or otherwise has opined that the sample is composed of mixture of hydrocarbons having following contents i.e.
(A) density at 15 degrees centigrade, 0.6474 c.m
(B) Initial boiling point 40 degree centigrade
(C) 10 degree distill V/V
(D) 50% distill V/V, 52 degree celcius
(E) 90 degree distill V/V
(F) 119 degree centigrade, flash point below 23 degree celsius.
(v) The other report is of the TUV India Private limited,post this report of 15.02.2021 which is dated 22.02.2021, which according to the petitioner confirms that it is Naphtha.
6. Reading of the Seizure Memo dated 26.02.2021 what is evident is that the Directorate of Revenue Intelligence (D.R.I) regional Unit, Gandhidham (Kutchh) has initiated an investigation in respect of the goods imported. The seizure memo indicates that since the declared goods are Natural Gasoline Liquid, none other than State Trading Enterprises are permitted to import these and the petitioner not holding such a status, the goods are prohibited and therefore are liable for confiscation as per the provisions of Section 111 of the Customs Act, 1962 and they are lying at liquid storage bank terminal, M/s. Friend Salt and Work and allied industries, Kandla, are so seized to be in safe custody pending such investigation.
7. Albeit, pursuant to an order passed by this Court on 05.04.2021, a re-test was undertaken and armed with this order, the petitioner contends that the sample 4 that was tested at the Geochem Laboratory is reported to be that of Naphtha by report of 11.05.2021 and the other report dated 18.05.2021 also confirms the consignment being Naphtha and therefore there is no mis-declaration cannot be gone into when there are reports in favour and against the petitioner by 5 different laboratories. Analysing the Chemical Reports and based on which to undertake a scrutiny of a Seizure Memo is not warranted in exercise of powers under Article 226 of the Constitution Of India.
8. Based on the correspondences that have been undertaken post the order passed by this Court on 05.04.2021 permitting drawing of samples for a re-test on 08.04.2021, the Directorate of Revenue Intelligence addressed a letter to the Managing Director of M/s. Hazel Mercantile Limited, the petitioner, requesting them to make necessary arrangment to make an authorized representative available for sampling proceedings. The petitioner proposed that the material be drawn by sample and be re-tested at certain laboratories namely 5 in number and also proposed certain parameters based on which such tests be carried out on the preferred methods. A clarification was issued on 15.04.2021 reiterating the parameters to be followed for re-test and the preferred methods at the laboratories. According to the petitioner, most of the parameters listed by them were standard specifications required in the industry and should be followed for re-testing of seized goods. What is evident from the communications annexed to the petition is that the petitioner independently forwarded the samples for re-testing to the Geochem Laboratory and to the IIPM without consulting the statutory authorities. Based on the order dated 05.04.2021 passed by the Court, it appears that the petitioner by its letters supplied a long list of 66 parameters proposed to be tested which was subsequently changed to a proposal of 49 parameters for testing. From reading of the affidavit-in-reply of the respondent, it appears that no parameters were suggested by the petitioner pertaining to the test of goods as Natural Gasoline Liquid. Even if the letters dated 16.02.2021 and 17.02.2021 which are pressed into service by Mr. Nankani are considered as creating a doubt about the Custom House Laboratory what is indicated is that though the lines of investigation was in context of whether the goods was Naphtha, the CRCL report dated 28.05.2021 (page 447 of the paperbook) in accordance with the parameters prescribed by the authorities in the test memo indicate unequivocally that the consignment is that of Natural Gasoline Liquid.
9. The validity of the test reports of M/s. Geochem Laboratories Private Limited and of the Indian Institute of Petroleum have been disputed by the authorities on the ground –
(i) That the test results have been influenced by providing misleading and biased content and parameters in the petitioner’s close ending request letters.
(ii) That the conclusion of the two reports supplied by the petitioner are different and contradictory to each other.
(iii) The test certificate dated 11.05.2021 of M/s. Geochem Laboratories is vague in nature and does not specify even the category of Naphtha. The test report of the Indian Institute of Petroleum is not specific as it concludes “the sample marked as S5 falls under the light Naphtha range” which only indicates the range and not the goods.
(iv) In contrast thereof there is a test report of the CRCL dated 28.05.2021, an accredited laboratory which shows that the consignment is that of Natural Gasoline Liquid.
10. In context of the argument of Shri Nankani with regard to misclassification being unjustified inasmuch as CTH 27101290 is a residuary entry with description “others” and not specifically Natural Gasoline Liquid which was erstwhile an entry 27101220 specifically covering Natural Gasoline Liquid and therefore since the scope of the residuary entry remained unchanged and never included Natural Gasoline Liquid makes the seizure memo invalid is a realm of interpretation of entries in context of the test reports which we would not want to undertake.
11. What is evident therefore in context of the pleadings in the petition and the response of the Union of India is that this court in exercise of powers under Article 226 is called upon to decide the legality and validity of a seizure memo by weighing the pros and cons of the test reports on the quality of the product, reports divergent which are produced by the petitioner and the respondent. We are afraid then when the validity of the reports are disputed inasmuch as it is the case of the Union of India through its investigating agency that the parameters and scientific analysis of the reports on which the petitioner seeks reliance are contradictory, this Court would be loathe in weighing its options on such disputed questions of fact and disturbing the seizure memo an exercise which cannot be undertaken in the midst of an investigation.
The Court in exercise of its extra-ordinary jurisdiction under Article 226 of the Constitution Of India cannot enter into a roving inquiry on the basis of conflicting test reports to decide the validity of a seizure memo.
12. Moreover, what we find from the records of the case is that the though it is a stand of the Union of India that there can be no provisional release of goods pending seizure for which reliance is placed on a decision in the case of Raj Grow Impex (supra) by the respondent counsel Shri Devang Vyas and also a decision from which Mr. Nankani draws support. The correspondence indicates that letters for provisional release and communications inter-se dated 28.02.2021, 16.04.2021, 04.05.2021 and 12.05.2021 made to the Principal Commissioner of Customs, Kandla are pending. No final decision on provisional release has yet been taken on these applications of the Petitioner.
13. The exercise of seizure is an interim measure pending investigation. What is evident from the affidavit-in-reply filed by the investigating agency is that based on the statements recorded under Section 108 of the Customs Act, 1962, the investigation is pending. Reading of the provisions of the Customs Act, 1962 Sections 111 and 112 which provide for confiscation of goods post an investigation, the authorities are required to issue a show-cause notice under Section 124 of the Customs Act, 1962 before confiscation of goods. That stage has yet not reached.
14. The entire issue of the seizure memo being disputed on the basis of test reports essentially being in the realm of disputed questions of facts we do not propose to exercise jurisdiction under Article 226 of the Constitution of India in favour of the petitioner and entertain the petition in context of the prayers made herein. We leave it at this stage for the petitioner to press for the applications for provisional release made under Section 110 the Customs Act, 1962 and direct the respondents to decide the applications so made pending before it, in accordance with law within a period of four weeks from the date of receipt of a certified copy of this order.
15. With the aforesaid observations we see no reason to entertain this petition and this petition is accordingly dismissed with no order as to costs.
