1. Import of synthetic rags under open general licence — concealment of serviceable garments — confiscation and penalty under Sections 111, 112, and 119 of the Customs Act, 1962. (Para 1 , 2 )
Back
Next 
1998 Supreme(SC) 908
SUPREME COURT OF INDIA
D.P.Wadhwa : S.C.Agrawal
Garg Woollen Mills Private Limited
Versus
Addittional Commissioner Of Customs, New Delhi
Case No. : 3285 of 1992
Date of Decision : 9/1/98
Important Points
In cases of fraudulent imports involving prohibited goods and misuse of licenses, absolute confiscation is justified. The discretionary option for a redemption fine under Section 125 of the Customs Act and the remedy of further mutilation are not available where the import process is fraudulent.
Subject
Customs Law - Confiscation and Penalties
Act Referred
Customs Act, 1962: S.111(d), S.119, S.112(b), S.125
Import (Control) Order, 1955
Import and Export Control Act, 1947: S.3(i)
Import (Control) Order, 1955
Import and Export Control Act, 1947: S.3(i)
Headnote
(A) Customs Act, 1962 - Sections 111(d), 111(f), 111(i), 111(l), 111(m), 111(e), 112(b), 119 and 125 - Import (Control) Order, 1955 - Import and Export Control Act, 1947 - Section 3(i) - Import of serviceable garments concealed as synthetic rags - Fraudulent use of open general licence through non-existent units - Absolute confiscation of goods and imposition of penalty upheld - Discretion to allow redemption fine under Section 125 not applicable in cases of patent fraud and prohibited imports (Para 5).
(B) Customs Act, 1962 - Section 125 - Option to pay fine in lieu of confiscation - Discretionary power of the officer in case of prohibited goods - Where goods are imported in violation of import control orders through fraud, absolute confiscation is justified and the officer is not obliged to grant an option for redemption fine (Para 5).
(C) Confiscation of goods - Offer for further mutilation - Such an offer can only be considered where the import is bonafide and the dispute relates only to the extent of mutilation; it cannot be claimed in cases where the entire import process is fraudulent (Para 6).
Facts of the case:
A bill of entry was filed for the import of synthetic rags under an open general licence, claiming registration as a small scale industry. Upon examination, it was discovered that serviceable garments, including shirts and windcheaters, were concealed behind synthetic woollen rags. It was found that ghost units were set up to misuse the licence facility. The authorities ordered the absolute confiscation of the goods and imposed a personal penalty.
Findings of Court:
The court found that the import was conducted through patent fraud and in violation of the Import (Control) Order, 1955. The tribunal's decision to distinguish the appellant's case from a co-accused based on available evidence was upheld.
Issues: Whether the penalty and confiscation could be set aside because a co-accused's penalty was cancelled; whether the officer was required to provide an option for a redemption fine under Section 125; and whether an offer for further mutilation of goods could prevent confiscation in a fraudulent import.
Ratio Decidendi: The court held that Section 125 provides discretionary power for prohibited goods, and in cases of fraud, absolute confiscation is appropriate. Furthermore, the benefit of further mutilation of goods to avoid confiscation is only available for bonafide imports, not for those involving fraud.
Result: Appeal dismissed with costs.
(B) Customs Act, 1962 - Section 125 - Option to pay fine in lieu of confiscation - Discretionary power of the officer in case of prohibited goods - Where goods are imported in violation of import control orders through fraud, absolute confiscation is justified and the officer is not obliged to grant an option for redemption fine (Para 5).
(C) Confiscation of goods - Offer for further mutilation - Such an offer can only be considered where the import is bonafide and the dispute relates only to the extent of mutilation; it cannot be claimed in cases where the entire import process is fraudulent (Para 6).
Facts of the case:
A bill of entry was filed for the import of synthetic rags under an open general licence, claiming registration as a small scale industry. Upon examination, it was discovered that serviceable garments, including shirts and windcheaters, were concealed behind synthetic woollen rags. It was found that ghost units were set up to misuse the licence facility. The authorities ordered the absolute confiscation of the goods and imposed a personal penalty.
Findings of Court:
The court found that the import was conducted through patent fraud and in violation of the Import (Control) Order, 1955. The tribunal's decision to distinguish the appellant's case from a co-accused based on available evidence was upheld.
Issues: Whether the penalty and confiscation could be set aside because a co-accused's penalty was cancelled; whether the officer was required to provide an option for a redemption fine under Section 125; and whether an offer for further mutilation of goods could prevent confiscation in a fraudulent import.
Ratio Decidendi: The court held that Section 125 provides discretionary power for prohibited goods, and in cases of fraud, absolute confiscation is appropriate. Furthermore, the benefit of further mutilation of goods to avoid confiscation is only available for bonafide imports, not for those involving fraud.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
Table of Contents
2. Challenge to absolute confiscation and penalty — plea for redemption fine under Section 125 — request for further mutilation of goods to avoid confiscation. (Para 4 , 5 , 6 )
3. Fraudulent import via ghost units — distinction between evidence against different parties — discretion to deny redemption fine in cases of patent fraud. (Para 4 , 5 , 6 )
4. Absolute confiscation is permissible for prohibited goods imported via fraud; redemption fines under Section 125 are discretionary; mutilation offers apply only to bonafide imports. (Para 5 , 6 )
5. Appeal dismissed with costs. (Para 7 )
6. When is an officer obliged or permitted to grant a redemption fine under Section 125 of the Customs Act?
For prohibited goods, the officer has discretion to grant the option to pay a fine in lieu of confiscation. For other goods, the officer is obliged to provide this option. In cases of patent fraud and violation of import control laws, absolute confiscation may be ordered without offering a redemption fine. (Para 5 )
7. Can an importer offer further mutilation of goods to avoid confiscation in cases involving fraudulent imports?
No. The option for further mutilation of goods to avoid confiscation is only available where the import is bonafide and the dispute relates solely to the extent of mutilation, not where fraud permeates the entire import process. (Para 6 )
8. Does the setting aside of a penalty for one party automatically entitle other beneficiaries of the same import to similar relief?
Not necessarily. If the tribunal distinguishes the cases based on the sufficiency of evidence against each individual, the relief granted to one party does not automatically apply to others. (Para 4 )
(1) THIS appeal is directed against the judgment of the Customs, excise and Gold (Control) Appellate tribunal (hereinafter referred to as the tribunal) dated 31/12/1991 whereby the ap- peal filed by the appellant against the order dated 10/07/1989 passed by the additional Collector of Customs, New Delhi was dis- missed. By his order dated 10/07/1989 the Additional Collector of Customs had di- rected confiscation of the goods covered by Bill of Entry No. 104090, dated May 24, 1988 of synthetic rags and serviceable gar- ments absolutely under Ss. 111(d), 111(f), 111(i), 111(1, 111(m), 111(e) as well asun- der S. 119 of the Customs Act, 1962 (here- inafter referred to as the Act) and had also imposed a personal penalty of Rs. 7 lakhs on the appellants under S. 112(b) of the Act.
(2) ON 24/05/1988 M/s. Arbindo Wool- len Mills filed a Bill of Entry for clearance at Inland Container Depot (ICD) Customs, Pragati Maidan, New Delhi. Along with the said bill of Entry the said M/s. Arbindo Mills gave a declaration for importing the goods under open general licence saying that they are registered with the authorities in Kanpur as a small scale industry and that their reg- istration has not been cancelled. They also filed the approval of the Textile commissioner, Kanpur, dated 9/05/1988 for the transfer and sale of 64 M.T. and 145 M.T. of synthetic rags to the appellants as transferred from one actual user to another in terms of the provisions of Ss. 108 to III of the Hand Book of Procedure for Import and Export Policy 1988-91. On examination of the bales it was found that the front view rolls of bales were found to be synthetic woollen rags and behind were found bales containing trousers cut into two pieces and serviceable garments including shirts and wind cheaters. The number of shirts in all the five containers on examination was found on pro rata basis as 40460 pieces and the total number of wind cheaters was arrived at 20020 pieces. The Department took the view that these serv- iceable garments had been concealed amongst mutilated garments and as such the whole consignment was liable to be confis- cated under S.I 19 of the Customs Act. Show cause notices were, therefore, issued to Sanjeev Kumar, Proprietor of M/s. Arbindo Woollen Mills as well as to the appellants and one S. P. Goyal. After considering the replies of the said persons to the show cause notices the additional Collector of Customs passed the order aforementioned. the additional Collector in the said order has re- Garg Woollen Mills (P.) Ltd. v. Additional Collector of Customs N. Delhi corded the following finding :
"EVIDENTLY, it is clear that Shri S. P. Goyal is the brain behind in fraudulently importing huge quantity of raw-material in the name of non-existent unit and Shri Sanjeev Kumar is his front man and M/s. Garg Wool- len Mills is the beneficiaries in these imports. The non-appearance of Shri Ajay Garg Di- rector of M/s. Garg Woollen Mills before the DRI authorities in spite of summons also indicates guilt on his part. Similarly the ap- pearance of Shri S. P. Goyal before the DRI officials as late as 10-10-88 in pursuance to the directions given by the Additional Sessions Judge, Ludhiana on his anticipatory bail application dated 6-9-88 and that too in presence of his advocate is also indicative of his involvement in these nefarious activities."
(3) ON appeal the tribunal has agreed with the said finding recorded by the Additional CollectoR.The Tribunal has found that the permission for transfer of the goods in terms of the Import Policy granted by the Textile Commissioner had been cancelled. It was further observed that "the present case is the culmination of intelligence received by the DRI that ghost units are set up to misuse the O.G.L. facility given to actual users manufacturing shoddy yarns to import rags, and serviceable garments are imported and dis- posed of in the market." The tribunal has, therefore, upheld the order regarding c
