By TIOL News Service

ERNAKULAM, SEPT 26, 2013: BOTH the appeals are filed by the official respondents (Customs Preventive Division) against the common judgment passed in two writ petitions filed by the wife and children of a "defaulter" under the Customs Act, 1962 and proceeded against under the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995; the Rules having been framed in exercise of the powers conferred under Section 156 read with Section 142 of the Act.

The issue, in a short compass, is whether, for dues of the "defaulter"; the appellants, viz., wife and children of the defaulter, are entitled to be proceeded against and the properties standing in their name, applied to the satisfaction of such dues of the defaulter; on the premise that the same were in fact purchased by the defaulter and that the purchase in favour of the defaulter's dependents and in one instance the conveyance made to his son are to defeat the recovery of dues to the appellant-Department. The transactions with respect to the properties thus not disclosing the true nature of ownership; in any event being in the control of the "defaulter", the same are liable to be proceeded against for dues of the defaulter, is the contention of the appellant.

The brief facts leading to the recovery proceedings are that the defaulter was running a proprietary business, in the course of which he imported CF Lamps from China into India. The goods were cleared as per Bill of Entry dated 28.12.2001 by paying the customs duty and not the Anti-Dumping Duty. Admittedly the Government of India had imposed Anti-Dumping Duty by a notification dated 21.12.2001, seven days before the actual clearance, which again admittedly was not even in the notice of the officials of the Department. It is clearly admitted that by an inadvertence triggered by ignorance the goods were cleared without imposition of Anti-Dumping Duty and later show cause notice for levy of such Anti-Dumping Duty was issued on 13.02.2003, imposing a duty of Rs.97,35,379 /- under Section 28(2) of the Act. The levy is not in dispute, since the same has attained finality with the dismissal of a Special Leave Petition filed by the defaulter.

The appellants for their part assert ignorance of any of the proceedings since the 'defaulter' though alive, is living separated. From the records it is understood that the show cause notice was issued on 13.02.2003 and after finalization of the proceedings before the Supreme Court, a notice was issued on 06.12.2010.

The said notice, purporting to be under the Rules issued under Section 156 read with Section 142 of the Act, speaks of a notice under Section 142(1)(c)(ii) of the Act read with Rule 4 of the Rules issued to the defaulter. It also speaks of an enquiry conducted by the Department, which revealed that certain properties were in the possession of the wife and sons of the defaulter. It stated that the defaulter having been served with the notice under Rule 4, it shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him under Rule 9 of the Rules. It also spoke of a suit filed by the wife of the defaulter for declaration and consequential injunction against the appellants, which suit stood dismissed. The notice than requested the Sub Registrar, the addressee, not to allow mortgage, charge, lease or otherwise deal with any property belonging to the aforesaid persons. Hence obviously the levy was on the defaulter and so was the service of notice effected ; but the restrain order was with respect to the properties standing in the name of the defaulter's wife and children.

The Single Judge essentially considered the question whether the Department can attach and sell the property standing in the name of another person treating the same as hit by Section 53 of the Transfer of Property Act, 1882 and treating the same as a sham transaction. It was noticed that except one property, which was conveyed by the defaulter in the name of his son, the allegation with respect to all the other properties were that they were purchased in the name of the defaulter's dependants with the funds of the defaulter. It was also found that certain properties were purchased in the name of the dependants even before the transaction, i.e., the import of the goods occurred. The Single Judge found that there is no vested right in the Department to take over any of the properties which are in the name of the dependants of the defaulter and it was categorically found that the statute does not permit such a course of action. Hence, the impugned notices were set aside and liberty was left to the Department to take appropriate proceedings known to law, if the Department intended to proceed against the properties and sell the same.

The Department is in writ appeal against the order of the Single Judge of the High Court.

The Division Bench of the High Court observed,

In the instant case the Department claims that the property purchased in the name of the wife is that of the 'defaulter' and since sub-section (2) of Section 3 of the Benami Act saves purchases of property by a person in the name of his wife, hence the property is to be treated as one in the control of the husband; here 'the defaulter'. The fact that the Benami Act saves a purchase in favour of the wife by the husband, from the prohibition contained in the statute, does not at all aid the Department unless it is established that the transaction was not for the benefit of the wife. There cannot be any control conferred on the husband merely for reason of the purchase being made in the name of the wife, with the money of the husband. The further contention of the Standing Counsel is that the relationship between a husband and wife is fiduciary in character and that the husband having paid the consideration for the purchase of the property, the wife is bound to account to the husband and in such circumstance the property even if in the name of the wife, can be proceeded against for the dues of the husband/defaulter.

Whether the notices and the proceedings taken under the Act and the Rules can be sustained on the strength of the provisions of the Act and the Rules. Independent of the rejection of any general right sought to be asserted by the person against whom proceedings are taken, the Department should establish that such person is a "defaulter" under the Act and is liable to be proceeded with. If any person is holding property other than the defaulter and on which property the defaulter is said to have an interest, then there should be a provision in the statute clothing the officer entrusted with the levy or collection, to so adjudicate on the interest of the defaulter and come to a finding with respect to that. Of course then notice should also be served on all affected parties. The contention with respect to the fiduciary relationship, benami transactions and sham transactions do not at all aid the Department unless they approach the proper forum for adjudication of such grounds, especially so when no officer authorized under the Act and the Rules are conferred with such adjudicatory powers. In the absence of any such judicial or quasi-judicial powers conferred on the authorities, the same can only be exercised by the Courts on which the State has conferred its judicial powers.

In the instant case also, the 'defaulter' was the person who was conducting the business and the notice of default under the Rules was also served only on him. While invoking Rule 9, which prohibits alienation of properties in any manner, the properties of the wife and children were sought to be distrained. There is no power conferred on the officer to adjudicate on the ownership of a property held by another, deeming it to be ostensible ownership and find the defaulter to be the real owner.

Section 142-A making liabilities under the Act to be first charge was also brought in, only in the year 2011. In the absence of a provision, the like of which is found in the Kerala Sales Tax Act, the Central Sales Tax Act, the Income Tax Act and the Kerala Revenue Recovery Act, the Department cannot avail of any general principle to find a property possessed and owned by a person as being actually owned or under the control of a "defaulter" under the Act and then to proceed for recovery of such properties. Even if there were such a provision that would definitely require a process of adjudication ; before, a property standing in the name of one is to be found actually or in control of another. Obviously, such a procedure would require notice too. Any such provision or procedure is totally absent from the provisions of the Act and the Rules and admittedly no notice has been sent to the petitioners in the two writ petitions. The provision under Rule 9 making any transfer or delivery of a property attached as void would in any event be only effective from the date of notice under Rule 4, that too applicable only to the "defaulter's" properties. The transactions said to have been made by the defaulter in the name of the wife and children are all before such notice was served on the "defaulter". The transaction with respect to the property which was the subject matter of the suit, was long before even the transaction which led to the short-levy.

On the strength of the reasoning above, held that the judgment of the Single Judge is not liable to be interfered with, at all.

The Writ Appeals are dismissed.

(See 2013-TIOL-729-HC-KERALA-CUS)