IMPORTANT POINT
When goods are exempted from Customs duty subject to a condition and the condition is not observed, the goods are liable to confiscation and the fact that the licensing authority is empowered to conduct such an investigation does not by itself preclude the Custom authorities from doing so.

JUDGMENT

Bharucha, J.-The principal judgment was delivered by a Division Bench of the High Court of Karnataka in the case of M/s. Kamath Packaging Limited (Civil Appeal No. 1153/92). In the other matters the High Court followed the aforesaid Judgment.

2. A writ petition was filed by M/s Kamath Packaging Ltd. before the High Court seeking a writ of prohibition restraining the Customs authorities from proceeding with search and seizure operations in their premises. The writ petition was dismissed by a learned single Judge and the appeal therefrom by the Division Bench. The writ petition was filed upon the basis that the Customs authorities had no right or authority nor did the Customs Act, 1962, empower them to go into questions relating to the utilisation of the raw materials that had been imported by the appellants under advance licences granted to them under the Duty Exemption Scheme. It was the case of the Customs authorities that the raw materials had been imported by the appellants without payment of duty by availing of the benefit of an Exemption Notification dated 30th April, 1988 (No. 116/1988). The terms and conditions thereof had been violated by the appellants. Search and seizure operations in this behalf were, therefore, within their powers.

3. The said Exemption Notification was issued in exercise of powers conferred by Section 25(1) of the Customs Act and one of the conditions thereof was that the materials exempted thereunder would not "be sold, loaned, transferred or disposed of in any other manner".

4. Learned counsel for the appellant submitted that the investigation by the Customs authorities was in respect of alleged violations of the terms of the appellants advance licences which incorporated the terms of the said Exemption Notification. Only the licensing authority had the jurisdiction to investigate the alleged violations. The Duty Exemption Scheme under which the licences had been issued was a code by itself and excluded any investigation by the Customs authorities. The bond that had been furnished by the appellants pursuant to the licences also provided for action by the licensing authority.

5. Out attention was drawn by learned counsel for the appellant in support of his aforestated submissions to the Import and export Policy, 1988-91, wherein Chapter XIX dealt with the Duty Exemption Scheme. Paragraph 231 stated that the licence holder should, before clearance of the first consignment of import, execute a bond with the requisite value of bank guarantee or legal undertaking, as the case may be, with the concerned licensing authority in the prescribed form. In paragraph 243 thus :

"If a licence holder fails to discharge the prescribed export obligation within the permitted time, the licensing authority shall initiate action against the licence-holder on the lines indicated in Chapter XIX of the Hand Book of Procedures, 1988-91. This shall, however, be without prejudice to any other action that may be initiated by the Customs authorities for recovery of Customs duty or other duties and interest thereon under Section 142 of the Customs Act, 1962."

Learned counsel drew attention to the Hand Book of Procedures, April 1988- March 1991, issued by the Ministry of Commerce, Government of India, Chapter XIX whereof also dealt with the Duty Exemption Scheme. Paragraph 374 dealt with the consequences of a licence holder failing to discharge the prescribed export obligation, either in full or in part. If this happened in such circumstances that "the licensing authority is satisfied that the exempt material has not been sold or misutilised for domestic production" the action that could be taken was set out. In learned counsel s submission, these provisions of the Import & Export Policy and the Hand Book of Procedures showed that it was only the licensing authority which could investigate alleged cases of domestic sale of exempt material and the jurisdiction of the Customs authorities to do so was ousted.

6. Lear