1. Customs detention of imported polyester fabric — Dispute over fraudulent exports and duty evasion. (Para 1 , 6 )
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2001 Supreme(SC) 1557
SUPREME COURT OF INDIA
S.P.Bharucha, CJI., Brijesh Kumar, Y.K.Sabharwal, JJ.
Union Of India
Versus
R.C.Fabrics Private Limited
Case No. : 767 , 768 of 1995
Date of Decision : 11/6/01
Advocates Appeared: Bagchi Nisha : Bajpai N.K. : Bhatt S.Ravindra : Jha Anil Kumar : Prasad B.Krishna : Shankar Hari : Sorabjee Soli J. : Wadhwani R.P.
Important Points
Constructive res judicata does not bar a second customs adjudication if the evidence justifying the subsequent show cause notice was unavailable during the first adjudication. Additionally, the importer, not the customs department, remains liable for warehouse demurrage and storage charges.
Subject
Tax - Customs
Act Referred
Headnote
(A) Customs Act, 1962 - Sections 108 and 112 - Adjudication - Principles of Res Judicata - Applicability of constructive res judicata to subsequent proceedings - If evidence, such as a test report, was not available or considered at the time of a prior order, the principle of constructive res judicata cannot be applied to bar a subsequent adjudication on the merits of the case. (Para 13)
(B) Demurrage and Storage Charges - Liability of importer - Customs authorities are not liable to pay demurrage, container charges, or ground rent to warehouse corporations; such charges are recoverable from the importer. (Para 16)
Facts of the case:
An importer brought in fabric under a duty-free license. After initial discrepancies were settled through payment of fines and duty, the consignment was detained based on suspicions of fraudulent exports. A subsequent order of confiscation was set aside by the High Court for violation of principles of natural justice. On remand, the customs authority dropped the proceedings, citing the principle of constructive res judicata, arguing that a prior release order barred further adjudication of the same consignment. The High Court directed the release of goods and ordered the customs department to pay storage charges from a certain date.
Findings of Court:
The principle of res judicata is inapplicable because the test report forming the basis of the second show cause notice was not and could not have been considered by the authority during the first adjudication. The investigation permitted by the High Court must be concluded on merits to determine if fraud was committed. Furthermore, the direction for the department to pay demurrage is contrary to established legal precedent.
Issues: Whether the principle of constructive res judicata bars a second adjudication of the same consignment when new evidence is discovered, and whether the customs department is liable for demurrage and storage charges.
Ratio Decidendi: The court held that constructive res judicata does not apply when the evidence triggering the subsequent show cause notice was unavailable during the initial order. Consequently, the matter must be decided on its merits. Regarding storage charges, the liability remains with the importer, and the government cannot be directed to pay such fees to the warehouse corporation.
Result: Civil Appeal Nos. 767-768 of 1995 and civil appeal arising out of SLP
(C) No. 1663 of 2000 are allowed. Civil Appeal No. 7931 of 1995 is dismissed.
(B) Demurrage and Storage Charges - Liability of importer - Customs authorities are not liable to pay demurrage, container charges, or ground rent to warehouse corporations; such charges are recoverable from the importer. (Para 16)
Facts of the case:
An importer brought in fabric under a duty-free license. After initial discrepancies were settled through payment of fines and duty, the consignment was detained based on suspicions of fraudulent exports. A subsequent order of confiscation was set aside by the High Court for violation of principles of natural justice. On remand, the customs authority dropped the proceedings, citing the principle of constructive res judicata, arguing that a prior release order barred further adjudication of the same consignment. The High Court directed the release of goods and ordered the customs department to pay storage charges from a certain date.
Findings of Court:
The principle of res judicata is inapplicable because the test report forming the basis of the second show cause notice was not and could not have been considered by the authority during the first adjudication. The investigation permitted by the High Court must be concluded on merits to determine if fraud was committed. Furthermore, the direction for the department to pay demurrage is contrary to established legal precedent.
Issues: Whether the principle of constructive res judicata bars a second adjudication of the same consignment when new evidence is discovered, and whether the customs department is liable for demurrage and storage charges.
Ratio Decidendi: The court held that constructive res judicata does not apply when the evidence triggering the subsequent show cause notice was unavailable during the initial order. Consequently, the matter must be decided on its merits. Regarding storage charges, the liability remains with the importer, and the government cannot be directed to pay such fees to the warehouse corporation.
Result: Civil Appeal Nos. 767-768 of 1995 and civil appeal arising out of SLP
(C) No. 1663 of 2000 are allowed. Civil Appeal No. 7931 of 1995 is dismissed.
Legal Category Hierarchy
- administrative law
- customs law
- practice and procedure
Table of Contents
2. Importer claimed goods released after fine; Revenue alleged fraudulent exports and sought confiscation. (Para 7 , 9 )
3. Constructive res judicata inapplicable; earlier order did not consider subsequent test report. (Para 13 )
4. Principles of res judicata or constructive res judicata do not bar fresh adjudication based on new material. (Para 13 )
5. Matter remanded to Collector for fresh decision; appeal allowed; importer's appeal dismissed. (Para 15 , 16 , 17 )
6. Does the principle of constructive res judicata apply to customs adjudication proceedings?
No, constructive res judicata has no application when the earlier order did not consider the test report that was the basis of the later show cause notice. (Para 13 )
7. Is the Customs Department liable to pay demurrage and ground rent for storage of detained goods?
No, the Corporation is entitled to recover its charges from the importer, not from the Customs Department. (Para 16 )
8. Can a subsequent show cause notice be issued after an earlier adjudication order on the same consignment?
Yes, a subsequent adjudication is permissible when the earlier order did not consider the material forming the basis of the later notice. (Para 13 )
Y.K.Sabharwal, J.
(1) IN Civil Appeal Nos. 767-768 of 1995, the challenge of Union of India is to the judgment and order of the High Court whereby allowing the writ petition, the Collector of Customs has been directed to release the imported goods of the writ petitioner (respondent No. 1 herein) lying with the Central Warehousing Corporation Limited (for short the Corporation). It has been further directed that the first respondent will pay demurrage, container charges and ground rent to the Corporation from the date of storage of the goods till 15/01/1991 whereas the Collector of Customs will pay the said charges on account of storage of these goods from 16/01/1991 till the date of release of the goods.
(2) IN Special Leave Petition (C) No. 1663 of 2000, the challenge of the Government is to the order of the Customs, Excise and Gold (Control) Appellate Tribunal which upheld the order of Collector of Custom dated 22/10/1993. By the said order, the Collector of Customs directed the discharge of show cause notice dated 18/02/1991 and had directed that the proceedings be dropped. We grant leave in the special leave petition.
(3) CIVIL Appeal No. 7931 of 1995 has been filed by the original writ petitioner. The limited challenge therein is to the direction for payment of demurrage, container charges and ground rent by the said petitioner till 15/01/1991. The contention urged in this appeal is that the said charges are payable by the appellant only upto 21/09/1990 and not thereafter.
(4) THIS judgment will dispose of all four appeals.
(5) WE have heard learned Attorney General and also learned counsel for the Corporation. None, however, appeared for the importer who is respondent in Civil Appeal Nos. 767- 768 of 1995 and Civil Appeal arising out of SLP (C) No. 1663 of 2000 and appellant in Civil Appeal No. 7931 of 1995.
(6) THE importer filed Bill of Entry dated 16/08/1990 for clearance of consignment declared as 100% Polyester Fabric. On 3/09/1990, Custom Authorities conducted examination of 10% of the goods and found some discrepancies with regard to the declared length and weight of the fabric. The importer by its letter dated 4/09/1990 agreed with that examination and findings and requested the custom authorities not to go in for 100% examination of the goods. The Customs Authorities examined another 10% of the goods; on the basis whereof, it calculated average excess in length and weight. It found that total of 843.85 mts. (weight= 206.30 kg.) fabric was excess in length. The C1F value of the excess fabric was found to be Rs. 17,003/-(Assessable value Rs. 17.173.00). The importer requested the Assistant Collector of Customs for waiver of show cause notice and personal hearing. On 21st September, 19?0, the Assistant Collector passed an order on note-sheet whereby the Importer was allowed the release of the excess goods after payment of fine of Rs. 25,000.00 and personal penalty of Rs. 5,000.00. The amounts were deposited on 22/09/1990 as also customs duty amounting to Rs. 43,657.00 on the excess goods. On that day itself, i.e., 22/09/1990, DRI Officers visited the CFS Patparganj and detained the consignment on the basis of information available with them. On 15/11/1990, the DRI seized the detained goods.
(7) A writ petition was filed in the Delhi High Court by the importer seeking directions against the custom authorities for release of consignment of Polyester Fabric imported by it against duty free advance import licence urging that the consignment had been illegally and unauthorisedly detained by the custom authorities. The import was effected by the importer under Duty Exemption Entitlement Certificate (DEEC) and duty free advance import licence. Under that licence, the importer was allowed to import 80,000 Mts. of 100% polyester fabrics of C1F value of Rs. 16.16.000.00. One of the condition of important was that the importer would export 1,60,000 pieces o
