MARCH 26, 2024

By Ms Sonu Bhatnagar, Sr. Standing Counsel, CBIC, Delhi High Court

LAST year, the division bench of Delhi High Court rendered a detailed landmark judgment in a batch of writ petitions (Nidhi Kapoor vs. Principal Commissioner - 2023-TIOL-1020-HC-DEL-CUS) where gold was confiscated by Customs authorities and option to pay fine for redemption of such gold was denied by the said authorities.

The primary question which arose was with respect to interpretation of the term "prohibited" arising in Section 125 of the Customs Act, 1962 ("Customs Act") as per which Customs authorities can exercise their discretion in granting a redemption option in case of confiscated goods whose import/export is "prohibited" under Customs Act or any other law as opposed to the case of other goods where they are mandatorily required to grant such option to redeem.

Since import/export of gold was not expressly prohibited under any law, the Court had to address the above question by analyzing inter alia the provisions of Sections 2(33), 11, 111, 125 of Customs Act read with Sections 3 and 5 of Foreign Trade (Development & Regulation) Act, 1992 ("FTDR Act") and Baggage Rules, 2016, various judgments, CBEC and RBI's circulars and DGFT's notifications.

Section 2(33) of Customs Act defines the term "prohibited goods" while Section 111 of Customs Act deals with confiscation of improperly imported goods. Section 11(1) of Customs Act empowers the Government to prohibit import/export of goods either "absolutely" or "subject to such conditions". Meanwhile, Section 3(2) of FTDR Act also empowers the Government to pass order for "prohibiting, restricting or otherwise regulating" import/export of goods, services or technology, while Section 3(3) of FTDR Act deems all goods to which any such order under Section 3(2) applies, to be "prohibited goods" under Section 11 of Customs Act. Section 5 of FTDR Act authorizes the Government to frame and issue the Foreign Trade Policy. Thus, for the purpose of our discussion herein, it would be relevant to deliberate over the most relevant judgments which the Court has analyzed to support its reasoning based on the above provisions.

The Court wholly agreed with the Apex Court's interpretation of the term "prohibited goods" defined under Section 2(33) of Customs Act in Sheikh Mohd. Omer vs. Collector of Customs, (1970) 2 SCC 728 , which held that the definition also included goods which required compliance of import conditions and that the term "prohibition" used under Section 111(d) of Customs Act would include both complete and partial prohibitions including restrictions which are also a type of prohibition. It also agreed with the analysis of the term "prohibited goods" in Om Prakash Bhatia vs. Commissioner of Customs- 2003-TIOL-06-SC-CUS, as per which where there was any prohibition of import/export of goods under Customs Act or any other law in force, such goods would be considered as prohibited goods; however, goods whose import/export conditions were complied with, would not be considered as prohibited goods under Section 2(33). This understanding was noted to be evident in Section 11(1) which authorizes the Government to prohibit import/export of goods either "absolutely" or "subject to such conditions". Thus, import/export of goods could be conditional and where there was failure in complying with their conditions for import/export, the goods thereof would become prohibited goods.

Reliance was also placed on Commissioner of Customs (Prev) vs. M. Ambalal & Co.- 2010-TIOL-111-SC-CUS, to state that smuggled goods can never be imported goods. The Apex Court in that case, while dealing with an exemption notification under Section 25(1) of Customs Act, held that goods become exempted only when all conditions of such notification are fulfilled and smuggled goods cannot be included in imported goods to whom the benefits of the exemption notification are available. Thus, the goods in that case (rough diamonds) which were imported without license, were held to be smuggled goods that were prohibited due to such non-compliance and due to which, they were not entitled to redemption under Section 125 of Customs Act.

Thereafter, while discussing the judgment in Commissioner of Customs vs. Atul Automations (P) Ltd - 2018-TIOL-1025-HC-KERALA-CUS, the Court noted that the said case did not consider the Apex Court's earlier judgments in Sheikh Mohd. Omer and Om Prakash Bhatia , before allowing redemption of restricted goods which were confiscated due to unauthorized importation. It also noted that Atul Automations was later distinguished in the judgment in UOI vs. Raj Grow Impex LLP,- 2021-TIOL-187-SC-CUS-LB which held that the restricted goods in Atul Automations were permitted to be imported as they were not manufactured in India, whereas in the case before it, the goods were restricted for import due to their effect on the domestic Indian market. Prior to this, the Apex Court also stated that Atul Automations did not lay down the law that goods in every case of unauthorized import, would be considered as restricted and not prohibited goods or that they could be released on payment of redemption fine. The Court in Raj Grow Impex, deemed the goods in the case before it, which were imported contrary to notifications and trade notice, to be prohibited goods under Section 11 of Customs Act in view of Section 3(3) of FTDR Act and rejected the contention that the goods fell in "restricted" and not "prohibited" category.

After analyzing the above judgments, the Court examined the various circulars and notifications regulating the import of gold in view of the provisions of Customs Act and FTDR Act. The Bench unanimously held that the term "prohibited" under Section 125 of Customs Act would include not only goods whose import/export is expressly prohibited by notification/order (under Section 11 of Customs Act, Section 3 of FTDR Act or any other law in force), but also goods which have been imported/exported in contravention of conditions for their import/export, and due to which the redemption of such goods would not be mandatorily permitted in every case where Customs authorities will exercise their discretion in granting the option to redeem. Moreover, if Section 2(33) was intended to apply only to expressly prohibited goods, then there was no need for the said provision to exclude goods which were imported/exported after complying with their conditions. The Court was also of the view that absence of express notification under Section 11 of Customs Act or Section 3(2) of FTDR Act, would not be of much consequence since there were restrictions on import of gold referable to Section 5 of FTDR Act as being construed under Foreign Trade Policy, which makes import of gold subject to RBI regulation.

Although the reasoning in this judgment was rendered in the context of gold, the same principles would apply to any other goods sought to be imported/exported in breach of their conditions, as stipulated under the Customs Act, FTDR Act and/or by the RBI. Incidentally, a Special Leave Petition has been filed against this judgment before the Supreme Court which has granted notice in the same. 1 Thus, the reasoning in this judgment is yet to attain finality and question whether to prohibit or not is still awaited.

[The views expressed are strictly personal.]

1. Order dated 01.12.2023 passed in SLP(C) No. 25539/2023.