In a landmark judgment, the Supreme Court of India ruled that subsequent purchasers of imported vehicles cannot be held liable for customs duty evasion committed by the original importer.
The dispute revolved around a Porsche Carrera imported in 2002 by one Jalaludheen Kunhi Thayil. The car subsequently changed hands twice, eventually being purchased by Nalin Choksey in 2004. In 2007, customs authorities issued a show-cause notice demanding ₹17.92 lakhs in unpaid customs duties. Allegations included misdeclaration of the car’s model and tampering with its chassis number by the original importer.
The Commissioner of Customs upheld the demand for differential duty and ordered confiscation of the car. However, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled in favor of Choksey, declaring him a bona fide purchaser with no connection to the import process. The High Court of Kerala overturned this decision, prompting Choksey to approach the Supreme Court.
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The Supreme Court emphasized that customs duties under Section 28 of the Customs Act are payable by the importer. As Choksey was not involved in the car’s importation, he could not be treated as an “importer” under the Act.
Referring to Section 2(30) of the Motor Vehicles Act, 1988, the Court clarified that the legal owner is the individual whose name is registered on the vehicle’s certificate. Since the car’s registration remained under the original importer’s name, Choksey could not be deemed its legal owner under customs law.
While the Customs Act allows for confiscation and redemption fines, the Apex Court ruled that liability falls only on the legal owner or the importer, not on bona fide purchasers.
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The Court found the proceedings initiated against Choksey to be unlawful, as the actual legal owner—Jalaludheen Kunhi Thayil—was known and should have been the focus of the investigation.
It was observed that, “A reading of the above would indicate that when a motor vehicle stands registered in the name of a person, he would be the owner of the said motor vehicle. Section 49 of the Motor Vehicles Act, 1988 deals with the necessity for registration.
Admittedly, in the instant case, the car in question has not been registered in the name of the appellant herein but the registration certificate continues to be in the name of the original importer Sri Jalaludheen Kunhi Thayil. Therefore, the latter is the owner of the vehicle in law. It may be that there has been a transfer of the vehicle from Sri Jalaludheen Kunhi Thayil to Sri Shailesh Kumar from whom the appellant has purchased the vehicle. However, there is no ownership in law which can be recognized insofar as the appellant herein is concerned inasmuch as his name has not been entered in the registration certificate concerning the vehicle in terms of the provisions of the Motor Vehicles Act, 1988.”
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It was thus held that, “the appellant herein cannot be construed to be the owner of the vehicle and hence, he does not fall within the scope and ambit of Section 125 of the Customs Act, 1962. Further, the argument that the appellant can be made liable to pay the duty because the seized car was in the possession of the appellant cannot also be accepted, since as per Section 125(1) of the Customs Act, the possessor of the car can be made liable only when the owner of the goods is not known. However, in the instant case, it is an admitted position that the ownership of the vehicle in law is still with the importer Sri Jalaludheen Kunhi Thayil and thus, the owner of the vehicle is known.”
In result, the Supreme Court Bench of Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh quashed the High Court decision, reinstating the Appellate Tribunal’s order in favor of the appellant. The Customs Department was directed to pursue claims against the original importer instead.
This decision is expected to set a significant precedent in similar disputes involving subsequent purchasers of imported goods.
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