Case Law Details
Givaudan India Pvt. Ltd. Vs Commissioner of Customs (Karnataka High Court)
The Hon’ble Supreme Court in Gullapalli Nageswara Rao and Others vs. Andhra Pradesh State Road Transport Corporation and Others supra, while considering the question whether it would be permissible for one person to afford personal hearing and for another to decide, has held as follows:
‘Personal hearing enables the authority concerned to watch the demeanour of the witnesses and clear up his doubts during the course of the arguments, and the party appearing to persuade the authority by reasoned argument to accept his point of view. If one person hears and another decides, then personal hearing becomes an empty formality. We therefore hold that the said procedure followed in this case also offends another basic principle of judicial procedure.’
In the light of the undisputed fact that the personal hearing was held by Sri. H.C. Neelakantarya, the then Assistant Commissioner of Customs [SVB] and the Investigative Report is filed by the incumbent Assistant Commissioner Sri. K.S.V.Murthy, this Court will have to opine that this procedure, as held by the Hon’ble Supreme Court, offends one of the basic principles. Therefore, the impugned Investigating Report [Annexure-AA] is liable to be quashed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
The writ petitioner, it is asserted, is a 100% subsidiary of M/s Givaudan Suisse SA, Switzerland and is engaged in the business of trading and manufacturing of flavours and fragrances importing aromatic chemicals, natural essential oils, Resin oils, perfumery compounds, synthetic flavouring essences and food flavouring materials from its group companies based abroad. The petitioner has filed this petition for quashing of Annexure – AA, an Investigation Report dated 17.09.2018 in No.55/20 18 in F.No.S44/03/85/20 15-SVB-BNG (referred to as ‘the Impugned Investigation Report’) issued by the Assistant Commissioner of Customs, Special Valuation Branch, Bengaluru (the second respondent), and for a direction to the second respondent to rehear the petitioner within a reasonable time limit and issue a fresh investigation report.
2. The second respondent has furnished the impugned Investigation Report concluding that the petitioner’s relationship with its group companies has influenced the declared prices warranting intervention and opining that the declared prices are to be rejected under Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (for short, the CV Rules, 2007). The questions that arise for consideration in this writ petition are: whether the impugned Investigation Report is issued in violation of the principles of natural justice, and if it is issued in violation of the principles of natural justice, what would be the appropriate order. These questions arise for consideration in the circumstances stated hereafter.
3. The petitioner, because it is importing perfumery and flavouring compounds from its group companies, registered itself with the Special Value Branch (SVB) and is allotted a unique file number in S50/45/2003-SVB. The petitioner, upon its registration as aforesaid, has submitted its reply to the questionnaires as required, and in the subsequent proceedings, the Joint Commissioner of Customs, Special Valuation Branch vide the Order dated 05.10.2004 [Annexure – A] has concluded that the petitioner and its group companies, from whom the petitioner is importing perfumery and flavouring compounds, are related in terms of Rule 2(2)(iv) and (vi) of the erstwhile Customs Valuation Rules, 1988 but such relationship had not influenced the pricing pattern of the imported goods 1.
4. However, the show cause notice dated 07.01.2008 (Annexure-D) was issued by the Directorate of Revenue Intelligence calling upon the petitioner to show cause as to why the aforesaid order dated 05.10.2004 should not be rejected and the actual value be re-fixed as indicated therein and as to why the petitioner should not be called upon to pay the differential duty. The petitioner, pending decision on the cause shown by the petitioner against the proposed course of action vide the show cause notice dated 07.01.2008, has started paying 1% Extra Duty Deposit (EDD) over and above the applicable customs duty for every import made.
5. The show cause notice dated 07.01.2008 has culminated in the adjudication order dated 26.03.2009 (referred to as ‘the order-in-original) in terms thereof, and the petitioner has preferred an appeal in C/456 and 457/2009 with the Customs And Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru calling in question the order-in-original: pending the appeal, the petitioner has submitted a request for renewal of the SVB order dated 05.10.2004. Though the said SVB order is not renewed, after correspondence, the Assistant Commissioner of Customs (SVB), Chennai has called upon the petitioner to continue to pay EDD at the rate of 1% over and above the custom duty payable until a renewal of the SVB order dated 05.10.2004 is issued.
6. The petitioner, with the transfer of files between the Assistant Commissioner of Customs (SVB), Chennai and the Assistant Commissioner of Customs (SVB), Bengaluru – the second respondent, has submitted representations for renewal of the SVB order dated 05.10.2004. The petitioner’s request for renewal of the said SVB order is kept in abeyance awaiting the CESTAT’s order in the appeal filed by the petitioner. The CESTAT by its order dated 20.01.2016 in No.20067-20068/20 16 has set aside the order-in-original and remanded the matter for re-adjudication.
7. Meanwhile, the Union of India has issued theCircular dated 09.02.2016 in No. 5/2016 detailing the procedure to be followed for renewal of SVB orders. In terms thereof, the petitioner is called upon to file declarations, and the petitioner has submitted declaration as per Annexure-1 appended to the Circular dated 09.02.2016 in No. 5/2016. The Petitioner has filed a Writ Petition in W.P No.4 1837/20 16 because there was no decision after the Assistant Commissioner of Custom (SVB), Bengaluru – the second respondent – refused to accept the declaration filed by the petitioner in Annexure-1 and the petitioner filed further information to justify filing declaration in Annexure – 1.
8. This Court in W.P No.4 1837/20 16 by its interim order dated 27.10.2016, while directing that no EDD shall be charged from the petitioner without the specific leave of the Court, directed the second respondent to pass appropriate orders in accordance with the Circular dated 09.02.2016. After this interim order dated 27.10.2016, the second respondent by order dated 5.11.2016 rejected the declaration filed by the petitioner in Annexure-1 and directed the petitioner to follow instructions in the circular dated 09.02.2016. The petitioner unsuccessfully challenged the aforesaid order dated 05.11.2016.
9. The writ petition in WP No.4 1837/20 16 is disposed of by this Court on 27.03.2018 directing the second respondent (who is arrayed as the 4th respondent in WP No.4 1837/20 16) to adjudicate upon the issue and take a decision in accordance with law within a time frame. The material part of the direction reads as follows:
Hence, in order to meet the ends of justice, it would be appropriate to direct the respondent No.4 to adjudicate upon the issue and take a decision in accordance with law, after hearing the petitioner in an expedite manner, in any event, not later than two months from the date of receipt of certified copy of the order.
This Court has also clarified that the interim protection granted by this Court on 27.10.2016 insofar as payment of additional EDD shall continue to operate until a decision is taken by the second respondent.
10. The second respondent, after being informed about this Court’s order dated 27.03.2018 in WP No.4 1837/20 16 has extended personal hearing to the petitioner. The personal hearing is held on 15.05.2018 by the incumbent second respondent, Sri. H D Neelakantaraya and the proceedings are recorded in writing as per Annexure-W. The petitioner has also filed his written submission. Thereafter the impugned Investigation Report is furnished on 17.09.2018 by the incumbent second respondent as of that day, Sri K.S.V.Murthy. It is unretractable that the personal hearing is extended by one officer and the Impugned Investigation Report is furnished by another officer.
11. Sri S S Naganand, learned Senior counsel arguing on behalf of the petitioner relies upon the terms of the Circular dated 09.02.2016 in No.5/20 16 and this Court’s Order dated 27.03.2018 in W.P No.4 1837/20 18. The learned Senior Counsel submits that the said Circular delineates the different parameters that will have to be taken into consideration by a Deputy Commissioner/Assistant Commissioner of Customs (SVB) in assessing whether relationship has influenced the pricing pattern of the imported Goods. It also prescribes the procedure for inquiry/investigation into related party transactions. The Circular dated 09.02.2016 in No. 5/2016 prescribes that upon receipt of information filed by an importer in the prescribed forms, a Deputy Commissioner/Assistant Commissioner (SBV) shall commence inquiry. During the course of such inquiry, the importer may be called to furnish further documents or information as required and the importer be given suitable opportunity to submit evidence in support of the declared value. After completion of enquiry/investigation, the Deputy Commissioner/Assistant Commissioner of Customs (SUB) furnishes an Investigation Report incorporating all the relevant facts, submissions made by the importer, investigative findings, grounds for acceptance or rejection of the transaction value and the extent of influence on declared transaction value, if any. This Investigation Report, which forms the basis for further decision by the adjudicating authority, is to be preceded by an inquiry which has all the strappings of a personal hearing. Therefore, this Court in W.P No.4 1837/20 16 directed the Assistant Commissioner of Customs (SUB) to hear the petitioner and furnish Investigation Report.
12. Sri S S Naganand, the learned Senior Cousnel emphasizes that the Assistant Commissioner of Customs (SBV) in holding the inquiry and filing Investigation Report after giving a personal hearing in terms of the Circular dated 09.02.2016 in No.5/20 16 is discharging quasi judicial function. There has to be fair play in holding such inquiry and the same should comply with the principles of natural justice: one of the basic aspects of the principles of natural justice is that justice should not only be done but seem to be done. If the personal hearing as part of such inquiry is extended by one officer but the Investigation Report, after such personal hearing, is rendered by another officer, there is violation of the principles of natural justice.
13. Sri S S Naganand, learned Senior Counsel in support of this canvass relies upon the decision of the Hon’ble Supreme Court in Gullapalli Nageswar Rao and others vs. Andhra Pradesh State Road Transport Corporation and Others2 and submits that this principle enunciated by the Hon’ble Supreme Court in this decision has been reiterated time and again. Sri.S.S.Naganand, learned Senior Counsel reiterates that in these circumstances, the impugned Investigation Report requires to be quashed and the matter remitted to the Assistant Commissioner of Customs (SBV) for de novo hearing.
14. Sri Jeevan J Neeralagi, learned counsel for the respondents, on the other hand, relying upon the decision of Hon’ble Supreme Court in Kalinga Mining Corporation vs Union of India and others3 submits that the impugned Investigation Report is an institutional decision. This Court in WP No.4 1837/20 16 in directing the Assistant Commissioner of Customs (SVB) Bengaluru to adjudicate upon the issue and take a decision in accordance with law after hearing the petitioner in an expedited manner, did not direct any one particular officer to give the hearing. The material placed on record is considered and an institutional decision is taken. In case of an institutional decision, there cannot be any insistence on one particular officer furnishing a report or taking a decision. Therefore, the argument canvassed by the learned Senior Counsel that the impugned Investigating Report would be untenable and cannot be accepted.
15. Sri Jeevan J Neeralgi, learned Counsel also submits that though violation of the principles of natural justice is alleged, the petitioner has not pointed out any prejudice occasioned to the petitioner. And, because prejudice as a consequence of such alleged violation of the principles of natural justice is not brought out, the contention that the impugned Investigating Report is rendered in violation of principles of natural justice, cannot be sustained. Sri Jeevan J Neeralgi, learned Counsel relies upon the decision of the Hon’ble Supreme Court in Dharampal Styapal Ltd. v. Deputy Commissioner of Central Excise4 in support of this decision.
16. In rejoinder, Sri S S Naganand, learned Senior Counsel relying upon the decision of the Hon’ble Supreme Court in Automotive Tyre Manufacturers Association v. Designated Authority and others5 submits that it is settled that unless statutory provisions specifically or by necessary implication exclude the application of the requirement of a reasonable opportunity, such requirement is read into the provisions of such Statute/Rule, particularly when the order as adverse civil consequences inasmuch as there would be obvious infraction of property or personal rights, or material deprivation to the party affected. Once the breach of natural justice is established, it would be appropriate, as contended before the Hon’ble Supreme Court, to remand the matter for de novo adjudication from the stage the procedural irregularity as intervened. In the present case, the Circular dated 09.02.2016 in No. 5/2016 which details the procedure to be followed by the Assistant Commissioner of Customs [SVB] has provided for compliance with the principles of natural justice, and the breach thereof being obvious, material irregularity in the decision making is established. Therefore, interference by this Court is justified.
17. The Circular dated 09.02.2016 in No.5/20 16 is issued replacing the earlier system of adjudication by the concerned SVB. Prior to this Circular, the proper officer would pass an appealable order followed by the Assessing Officer passing another corresponding order finalizing the provisional assessment. But, with the issuance of the Circular dated 09.02.2016, the SVB does not anymore pass appealable order; instead, the SVB now on reference conducts inquiry/investigation and furnished investigative findings by way of an Investigative Report for finalising the provisional assessments. Further, the Circular dated 09.02.2016 has provided a detailed procedure to be followed by the concerned Deputy Commissioner/Assistant Commissioner of (SVB) apart from detailing the parameters that would have to be considered in examining the circumstances surrounding the sale and in evaluating whether the relationship between the importer of the goods and its related party abroad has influenced the pricing pattern.
18. The salient features of the new procedure, apart from assigning a case number and updating the Central Registry Database are that:
(i) the concerned Assistant Commissioner (SVB) may call for documents or information in addition to the information provided in the prescribed Annexures appended to the circular dated 09.02.2016,
(ii) a suitable opportunity is to be given to the importer to submit evidence in support of the declared value ,
(iii) furnishing of an Investigation Report including investigative findings and grounds for acceptance or rejection of the transaction value and the finding on the extent of influence on declared transaction value, if any6.
It is after the receipt of this Investigation Report that the adjudicating authority passes an order quantifying, the extent of influence, if any, in the declared transactional value. As stated in the Circular dated 09.02.2016 this mechanism is evolved to obviate multiple streams of appeals for the trade with an opportunity to the importer to submit evidence before the concerned Assistant Commissioner (SVB).
19. The Hon’ble Supreme Court In Jaswant Sugar Mills Ltd., Meerut Vs. Lakshmi Chand & Ors.,7 has observed that:
“Often the line of distinction between decisions judicial and administrative is thin: but the principles for ascertaining the true character of the decisions are well-settled. A judicial decision is not always the act of a judge or a tribunal invested with power to determine questions of law or fact: it must however be the act of a body Manufacturers Association v. Designated Authority and Others Supra or authority invested by law with authority to determine questions or disputes affecting the rights of citizens and under a duty to act judicially. A judicial decision always postulates the existence of a duty laid upon the authority to act judicially. Administrative authorities are often invested with authority or power to determine questions, which affect the rights of citizens. The authority may have to invite objections to the course of action proposed by him, he may be under a duty to hear the objectors, and his decision may seriously affect the rights of citizens but unless in arriving at his decision he is required to act judicially, his decision will be executive or administrative. Legal authority to determine questions affecting the rights of citizens, does not make the determination judicial: it is the duty to act judicially which invests it with that character. To make a decision or an act judicial, the following criteria must be satisfied:
(1) it is in substance a determination upon investigation of a question by the application of objective standards to facts found in the light of pre-existing legal rule;
(2) it declares rights or imposes upon parties obligations affecting their civil rights; and
(3) that the investigation is subject to certain procedural attributes contemplating an opportunity of presenting its case to a party, ascertainment of facts by means of evidence if a dispute be on questions of fact, and if the dispute be on question of law on the presentation of legal argument, and a decision resulting in the disposal of the matter on findings based upon those questions of law and fact.”
20. When the procedure laid down in the Circular dated 09.02.2016 in No.5/20 16 is examined as against these factors, there cannot be any doubt that a Deputy Commissioner, or an Assistant Commissioner (SVB), in furnishing an Investigative Report discharges a quasi-judicial function with the responsibility of extending suitable opportunity to submit evidence and to render an investigative finding with the grounds substantiating such finding. Further, the investigative finding by a Deputy Commissioner, or an Assistant Commissioner (SVB), in the scheme of the procedure contemplated under the Circular dated 09.02.2016, cannot be called as an institutional decision, the hallmark of which is a decision taken by a large number of people who take part in the collective decision-making process rather than one designated person.
21. Even otherwise, the Hon’ble Supreme Court in Automotive Tyre Manufacturers Association v. Designated Authority and Others supra after an overview of the decisions on compliance with the principles of natural justice has held as follows:
“It is thus, well settled that unless a statutory provision, either specifically or by necessary implication excludes the application of principles of natural justice, because in that event the Court would not ignore the legislative mandate, the requirement of giving reasonable opportunity of being heard before an order is made, is generally read into the provisions of a statute, particularly when the order has adverse civil consequences which obviously cover infraction of property, personal rights and material deprivations for the party affected. The principle holds good irrespective of whether the power conferred on a statutory body or Tribunal is administrative or quasi-judicial.
22. It is further declared in this decision that it is trite that the concept of natural justice can neither be put in a strait,jacket nor is it a general rule of universal application. There can be exceptions to the said doctrine, but the question whether the principle has to be applied or not is to be considered bearing in mind the express language and the basic scheme of the provision conferring the power; the nature of the power conferred and the purpose for which the power is conferred and the final effect of the exercise of that power. It is only upon a consideration of these matters that the question of application of the said principle can be properly determined.
23. It is also obvious from the provisions of Circular 09.02.2020 in No.5/20 16, which contemplate a suitable opportunity to submit evidence in support of the declared value and an investigative finding by a Deputy Commissioner/Assistant Commissioner [SVB] with the grounds for acceptance or rejection of the transactional value, that a personal hearing is granted to an importer to persuade the concerned authority to accept its view and also clear doubts. The Hon’ble Supreme Court in Gullapalli Nageswara Rao and Others vs. Andhra Pradesh State Road Transport Corporation and Others supra, while considering the question whether it would be permissible for one person to afford personal hearing and for another to decide, has held as follows:
“Personal hearing enables the authority concerned to watch the demeanour of the witnesses and clear up his doubts during the course of the arguments, and the party appearing to persuade the authority by reasoned argument to accept his point of view. If one person hears and another decides, then personal hearing becomes an empty formality. We therefore hold that the said procedure followed in this case also offends another basic principle of judicial procedure.”
24. In the light of the undisputed fact that the personal hearing was held by Sri. H.C. Neelakantarya, the then Assistant Commissioner of Customs [SVB] and the Investigative Report is filed by the incumbent Assistant Commissioner Sri. K.S.V.Murthy, this Court will have to opine that this procedure, as held by the Hon’ble Supreme Court, offends one of the basic principles. Therefore, the impugned Investigating Report [Annexure-AA] is liable to be quashed. As such, the following:
ORDER
[a] The writ petition is allowed.
[b] The impugned Investigative Report dated 17.09.2018 in No.55/20 18 in F.No.S44/03/85/20 15-SVB-BNG is quashed.
[c] The Assistant Commissioner of Customs [SVB], Bengaluru, the second respondent is directed to extend a personal hearing to the petitioner and furnish Investigation Report expeditiously but within an outer limit of two [2] months from the date of receipt of a copy of this order.
