No Application of S. 71, Customs Act on Imported Goods stored outside Notified Public Bonded Warehouse with Permission: Supreme Court [Read Judgement]

The Supreme Court has held that Section 71 of the Customs Act, 1962 is not applicable where imported goods were stocked outside the notified public bonded warehouse with the permission of the designated officer.

The Two-Judge Bench of the Supreme Court noted that, “Section 15(1)(b) would apply to goods cleared under Section 68. Goods which remain in the bonded warehouse beyond the permitted period would be deemed to have been improperly removed from the warehouse under Section 72.”

A warehouse within the precincts of the industrial/factory premises of the appellant was notified as a public bonded warehouse on management basis with M/s Central Warehousing Corporation as warehouse keeper by the then Collector of Customs and Central Excise, Indore vide the notification dated 03.05.1989 for storage of the imported second hand steel mill machinery and parts thereof without payment of customs duty. According to the respondent, the appellant had imported in all 595 cases of machinery parts which were required to be warehoused in the notified public bonded warehouse.

Acting on the basis of information received that the appellant had misused the warehousing facility, officials of the respondent had searched the industrial premises of the appellant including the notified public bonded warehouse on 07.08.1992. In the course of the search, the stock lying within the notified public bonded warehouse were verified. On such verification, only 304 cases were found lying inside the warehouse; 264 cases were found outside the warehouse but within the industrial/factory premises of the appellant; remaining 27 cases were not found either inside the warehouse or outside the warehouse within the industrial/factory premises.

The Customs Commissioner had confirmed the duty demand of Rs.3,99,255.00 in respect of 27 cases not found in the warehouse and imposed a penalty of Rs.1 lakh on the appellant under Section 112 of the Customs Act. That apart, the appellant was directed to pay interest on the duty confirmed in terms of Section 28AB of the Customs Act from the date of enforcement of the said section till the date of actual payment of duty.

The Commissioner had also confiscated 264 cases of imported goods valued at Rs.48,79,776.00 seized from within the factory premises of the appellant but outside the approved warehouse under Section 111 of the Customs Act. However, the confiscated goods were permitted to be redeemed on payment of a fine of Rs. 2 lakhs. Thirty days’ time was granted to the appellant to exercise the option for redeeming the goods. Further, the Commissioner had confirmed customs duty amounting to Rs.39,03,821.00 in terms of Section 71 read with the proviso to Section 28A of the Customs Act.

The appellant was also required to pay interest amounting to Rs.18,88,425.00 on the customs duty confirmed on the 264 packages from the date of warehousing till the date of detection of the shortage in the warehouse; in addition, appellant was also required to pay interest on the duty confirmed in terms of Section 28AB of the Customs Act from the date of enforcement of the said section till the date of actual payment of duty confirmed on the 264 cases.

In its reply, the appellant had stated that there was heavy rain in the month of August 1989 and the soil outside the notified warehouse had become very sluggish. As a result, the trailers carrying the consignment could not enter the notified warehouse. The goods were downloaded in the open outside the notified warehouse but within the factory premises. To prevent the goods from getting damaged, appellant had requested the concerned Superintendent of Customs and Central Excise to shift the machineries to a shed within the factory premises under Section 64 of the Customs Act. Permission was granted by the Superintendent.

In terms of such permission of the Superintendent, who was the proper officer, appellant had shifted the goods to under the shed to prevent further damage of the goods. It was contended that the goods were still under the bonded warehouse and could not be said to have been cleared, the appellant contended.

Commissioner by his adjudication order dated 28.08.1996 did not accept the reply of the appellant and confirmed the demand and interest.

A related appeal was filed by the appellant before the CESTAT. By the impugned order dated 30.04.2009, CESTAT dismissed the appeal.

The counsel for the appellant submitted that, “CESTAT was not justified for upholding the order of the respondent applying Section 71 of the Customs Act read with Section 28AB of the said Act while imposing interest on the confiscated goods.”

He added that the confiscation itself was not justified.

On the other hand, the respondent counsel submitted that, “On verification, it was found that 304 cases were stocked inside the warehouse while 264 cases were found outside the warehouse but within the factory premises. Remaining 27 cases were found neither inside the warehouse nor within the factory premises. It was thereafter that action was taken under the relevant provisions of the Customs Act following which show cause notice was issued to the appellants.”

The bench noted that, “There is an embargo provided in Section 71 from taking out goods from a warehouse. As per Section 71, no warehoused goods shall be taken out of a warehouse except on clearance for home consumption or re-exportation or for removal to another warehouse or as otherwise provided by the Customs Act.”

It was also observed that, “Following the decision of this Court in Kesoram, the  Central Board of Excise and Customs issued Circular No.31/97-Cus. dated 14.08.1997. The Board held that in view of this Court’s judgement, the date of payment of duty in the case of warehoused goods removed after expiry of the permissible or extended period would be the date of expiry of the warehousing period or such other extended period, as the case may be, and not the date of payment of duty.”

It was thus conclusively observed that, “Goods not removed from a warehouse within the permissible period or the extended period are to be treated as goods improperly removed from the warehouse.”

The decision in Kesoram was approved and applied by a coordinate bench of the Supreme Court in SBEC Sugar Ltd versus Union of India, wherein the apex court held that Section 15(1)(b) would be applicable only when the goods are cleared from the warehouse under Section 68 of the Customs Act i.e. within the initially permitted period or during the permitted extended period.

With respect to the specific facts of the case, it was noted that, “We may mention that the permission granted by the Superintendent to the appellant on 30.08.1989 to unload a portion of the cargo outside the open space which was notified as public bonded warehouse but within the factory premises of the appellant was neither cancelled nor revoked by the Superintendent or even by the Commissioner.”

It was thus noted that, “Infact, a view can reasonably be taken that the appellant as the owner of the goods had exercised its right under Section 64(d) which was endorsed by the Superintendent. Therefore, it would not be correct to say that the 264 cases found outside the notified warehouse but within the factory premises of the appellant were improperly or unauthorisedly removed from the notified public bonded warehouse.”

It was thus held that, “In such a scenario, the provisions of Sections 71 and 72 would not be applicable. Therefore, the decision of the respondent to invoke Section 71 and thereafter levy interest on the goods covered by the 264 cases under Section 28AB of the Customs Act was not justified.”

It was also held that, “Since the imported goods covered by the 264 cases were never warehoused inside the notified public bonded warehouse but were unloaded outside the notified area but within the factory premises of the appellant and kept under a shed on permission granted by the Superintendent which permission was neither cancelled nor revoked, question of warehousing the goods covered by the 264 cases within the notified public bonded warehouse did not arise.”

With respect to the missing 27 cases for which no explanation was given by the Appellant, the  Apex Court held that the CESTAT had correctly held that those 27 cases were improperly or unauthorisedly removed from the notified public bonded warehouse. The demand of customs duty and interest on the 27 cases has been sustained by the Supreme Court.

The Supreme Court, in result, has partially modified the CESTAT order.

To Read the full text of the Order CLICK HERE

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