Ideal Carpets Ltd. vs Union of India and Others

Krishn Kumar Lahoti, J.—This petition is directed against an order Annexure P/10 dated 20.6.2012 by which a provisional assessment order has been framed against the petitioner. For ready reference, we quote the entire order which reads thus:-

Consequent upon the order dated 10.05.2012 of Hon''ble High Court of M.P. at Jabalpur in W.P. No. 378/2012 the importer M/s. Ideal Carpets Ltd. was personally heard on 21.05.2012. The importer contended during hearing that goods have been in ICD for more than 12 months. The condition of the imported cargo has been deteriorated considerably and value should be assessed considering this fact and assessment as well as clearance should be done accordingly. In their written submission they requested that the order passed by Hon''ble High Court of M.P. at Jabalpur in W.P. No. 378/2012 may be complied with and consignment involved in B/E No. 2842630 dated 24.02.2011 and B/E 3470916 dated 11.05.2011 may be released accordingly. As per direction of the Hon''ble Court and hearing held on 21.05.2012. In view of the fact that investigation by DRI into the undervaluation of the consignment covered in these two B/Es is still not over, the duty liability on these two Bills of Entry are hereby ordered to be provisionally assessed u/s 18 of the Customs Act, 1962 subject to the importer executing a bond and bank guarantee for Rs. 38,25,658/- separately and depositing in cash the provisionally assessed duty of Rs. 9,65,585/-. The said amounts have been calculated considering the provisional value @ USD 7 per sq.yard and value likely to be finally assessed @ 22 USD per Sq.Yard. Penalties expected to be imposed under Sections 112 read with Sec. 111(m) and 114A of the Customs Act, 1962, for undervaluation and short levy due to willful mis-statement or suppression of facts, if any, as may be found as a result of the ongoing investigation, has also been taken into account for the purpose of estimating the amounts of bond and bank guarantee, as DRI in letter dated 25.08.2011 and 26.09.2011 has directed that the bond and bank guarantee should be finalized considering the additional duty liability, if any, along with penalty which may be imposed later on.

The importer has also imported 13 no of furniture and office equipment vide Bill of Entry No. 3470916 dated 11.05.2011. The value of the imported furniture being not under dispute, the importer has to pay duty liability of imported furniture i.e. Rs. 3720/- also at the time of release of goods.

It will be pertinent to mention here that before this order, the petitioner had filed a writ petition before this Court which was registered as W.P. No. 378/2012 and was finally disposed of on 10.5.2012 by which respondents were directed to extend an opportunity of personal hearing to the petitioner and to pass a fresh order in respect of provisional assessment. By an earlier order dated 12.10.2011, respondents herein had directed the petitioner to furnish bond and bank guarantee of Rs. 1,68,32,900/- which included differential duty of Rs. 84,16,450/-, penalty of equal amount and an additional deposit of Rs. 28,78,410/- towards provisional duty for provisionally releasing the goods. In the earlier round of litigation, it was intimated to the Court that the goods of the petitioner were not seized, but were retained subject to provisional assessment u/s 18 of the Customs Act, 1962 and respondents were ready to release the goods in case the amount so assessed is deposited. The Division Bench of this Court in W.P. No. 378/2012 directed the respondents to hear the petitioner and pass an order in accordance with law. In consequence to the order in W.P. No. 378/2012, the order quoted hereinabove has been passed by the respondents. This order has been assailed by the petitioner on the following grounds:-

(i) That, under Regulation 2 of the Customs (Provisional Duty Assessment) Regulations, 1963, only 20% of the provisional assessment duty could have been directed to be deposited and for remaining duty, respondents could have demanded a bond with or without surety or security or both, as they may deem fit, but directing the petitioner to deposit entire amount of provisional assessment order is without jurisdiction.

(ii) That, since 24.2.2011, the goods are lying with the respondents, but no final assessment order has been framed.

It is submitted that the respondents may be directed to accept 20% of the provisional duty and to release the goods forthwith.

Shri Dharmadhikari, learned counsel appearing for respondents opposed the aforesaid contentions and submitted that as per provisional assessment order, there is a finding that the goods were undervalued. As per petitioner, price of the goods was shown as US Dollar 7 per Sq.Yard while price of the goods was 22 US Dollar per Sq.yard and the aforesaid amount of Rs. 38,25,658/- is the amount which could have been found by way of duty against the petitioner, but inspite of this, provisional assessment duty has been assessed at Rs. 9,65,585/-. It is submitted that the petitioner may deposit provisional assessed duty and may furnish bond and bank guarantee of Rs. 38,25,658/- as has been shown in the order. It is also submitted that in case the goods are released on deposit of 20% of the provisional assessment amount, there may be a possibility that remaining amount of the duty as may be finally assessed may not be recovered from the petitioner as petitioner company is based at Bhadohi (U.P.) and the respondents are not in a position to say that the remaining amount can be recovered from the petitioner. Reliance is placed to a judgment of a Division Bench of Kerala High Court in Mohammed Fariz And Co., Firdouz International Trading Company, Keeveeyem Company Supariwala (P) Ltd and Kay Kay Enterprises, X/78a Vs. Commissioner of Customs and Assistant Commissioner (Imports), and submitted that this petition may be dismissed.

To appreciate the aforesaid contentions, it would be appropriate, if the regulations 2 & 4 of the Regulations are referred, which read thus:-

Conditions for allowing provisional assessment.--

Where the proper officer on account of any of the grounds specified in sub-section (1) of section 18 of the Customs Act, 1962 (52 of 1962) is not able to make a final assessment of the duty on the imported goods or the export goods, as the case may be, he shall make an estimate of the duty that is most likely to be levied hereinafter referred to as the provisional duty. If the importer or the exporter, as the case may be, executes a bond in an amount equal to the difference between the duty that may be finally assessed and the provisional duty and deposits with the proper officer such sum not exceeding twenty per cent of the provisional duty, as the proper officer may direct, the proper officer may assess the duty on the goods provisionally at an amount equal to the provisional duty.

Surety or security of the bond.-- The proper officer may require that the bond to be executed under these regulations may be with such surety or security, or both, as he deems fit.

Aforesaid regulations specifically provide that u/s 18(1) of the Customs Act, if a final assessment cannot be made, the assessing authority shall make an estimate of the duty that is most likely to be levied as the provisional duty and if the importer executes a bond in an amount equal to the difference between the duty that may be finally assessed and the provisional duty and deposits with the proper officer such sum not exceeding 20% of the provisional duty, as the said officer may direct, the proper officer may assess the duty on the goods provisionally at an amount equal to the provisional duty. Regulation 4 further provides that a bond may be asked with surety or security or both as the authority may deem fit. Aforesaid provision is very clear. It provides that 20% of the provisional assessment duty has to be deposited by the importer and for remaining amount of the provisional duty, a bond may be asked with surety or security or both. For the difference of the duty which can be levied on the petitioner, a bond can be asked from the importer.

The Division Bench of Kerala High Court considering the similar provision in Mohammed Fariz & company (supra), held in paras 12 and 13 thus:-

Since we have considered the scope of provisional assessment u/s 18 of the Act, we have to necessarily deal with the conditions with regard to collection of duty and security and release of goods pursuant to orders issued u/s 18 of the Act. In this regard conditions of provisional assessment and release of goods are contained in Regulation 2 & 4 of the Regulations framed u/s 157 read with Section 18(1) of the Act, which are extracted hereunder for easy reference;

Conditions for allowing provisional assessment.-- Where the proper officer on account of any of the grounds specified in sub-section (1) of section 18 of the Customs Act, 1962 (52 of 1962), is not able to make a final assessment of the duty on the imported goods or the export goods, as the case may be, he shall make an estimate of the duty that is most likely to be levied hereinafter referred to as the provisional duty. If the importer or the exporter, as the case may be, executes a bond in an amount equal to the difference between the duty that may be finally assessed and the provisional duty and deposits with the proper officer such sum not exceeding twenty per cent of the provisional duty, as the proper officer may direct, the proper officer may assess the duty on the goods provisionally at an amount equal to the provisional duty.

Surety or security of the bond.-- The proper officer may require that the bond to be executed under these regulations may be with such surety or security, or both, as he deems fit.

What is clear from Section 18(1) read with the above Regulations is that the Officer could make provisional assessment and release goods u/s 18 of the Act pending final adjudication only after ensuring that the actual duty that could be levied later will be recoverable from the party. For this purpose, the provisions of the Act and the Regulations above referred provide for determination of duty based on available documents, evidence and claim made by the party and also estimation of duty which according to the Officer is likely to be levied finally. So much of the duty determined based on the documents and claim of the party is the admitted duty which the party has to straightly remit. The duty provisionally determined is nothing but the duty which the Officer estimates over the duty admitted by the party as payable based on his estimation on the value, classification or the rate applicable, which is essentially a matter to be determined by the Officer. Regulation 2 makes it clear that besides remittance of the admitted duty in terms of the claim of the importer/exporter the officer can demand payment of duty up to 20% of the duty provisionally determined by him which is over and above the admitted duty payable in accordance with the claim of the party and assessed by the Officer. After remitting the duty in terms of the claim made by the party (admitted duty) and up to 20% of the provisional duty demanded by the Officer, the Officer is bound to collect security for the balance of the provisional duty which under Regulation 4 is through execution of bond supported by surety or security or both as the Officer deems fit. But we feel from the past follies of the Department stated by the learned Standing Counsel that the proper Officers provisionally assessing duty are under misunderstanding on the scope of Regulation (4) which requires surety or security in support of the bond executed which is noting but an undertaking to pay duty on demand. However, a surety bond should be valid only when it is supported by proper security, which may be by way of mortgage of immovable property or Bank Guarantee in favour of the Department or otherwise, and bond executed without proper security would serve only as a document to claim the amount. The Officer should realise that the best and safest course open to the Department is to demand Bank Guarantee from the local branch of a Nationalised Bank for balance provisional duty determined, so that recovery is ensured without any necessity for the Department to chase the parties and looking for their assets. In fact, credentials of the importer/exporter and such other matters should weigh with the Department in relaxing the condition for security, which in the normal course should be Bank Guarantee.

Aforesaid order does not say that importer is required to deposit entire amount of provisional duty, but interpreted Regulations 2 and 4 by saying that only 20% of the provisional duty is to be deposited and for remaining amount of duty, bond and bank guarantee can be asked from the importer and the action of the department in this regard was held to be justified. The factual position in the present case is entirely different. As per order Annexure P/10 dated 20.6.2012, it is apparent that the provisional duty has been assessed at Rs. 9,65,585/- which has been directed to be deposited while the petitioner herein has been directed to execute bond and bank guarantee for an amount of Rs. 38,25,658/-. The reason assigned in the aforesaid order appears to be that the goods may be valued at the rate of 22 US Dollar per Sq. Yard while price was shown at the rate of 7 US Dollar per Sq.yard, apart from the penalty etc. Apparently, provisional assessment duty is for Rs. 9,65,585/- and expected duty is Rs. 38,25,658/-. The provisional assessment order was framed on 20.6.2012 and the period of near about seven months have elapsed from the date of provisional assessment order. The goods are lying with the respondents since February. 2011 and apparently near about two years have elapsed from the date when the aforesaid goods were retained by the department. In these circumstances, there appears to be no justification for asking bond and bank guarantee for Rs. 38,25,658/- from the petitioner. The amount which could have been demanded from the petitioner should be 20% of the provisional assessment duty and for remaining duty, a bond with or without surety or security or both could have been asked from the petitioner. In view of aforesaid, it is apparent that order Annexure P/10 is contrary to the Regulations 2 and 4 and deserves modification by this Court. We could have remitted the matter to the respondents for passing another provisional assessment order, but looking to the fact that the goods are lying with the respondents since February, 2011, we propose to modify the order in following terms:-

(1) The petitioner herein is directed to deposit 20% of the provisional assessment duty Rs. 9,65.585/- in cash or by way of demand draft as the case may be. For remaining amount of duty of Rs. 9,65,585/-, petitioner shall furnish a bond alongwith bank guarantee to the respondents. For Rs. 38,25,658/-, petitioner shall furnish a bond to the respondents that in case such duty is imposed, the petitioner shall deposit aforesaid amount with the respondents.

(2) Petitioner shall further execute a bond that in case some penalty is also imposed upon the petitioner in respect of undervaluing the goods, petitioner shall make payment of such amount within a period of 30 days from the date of such order subject to appeal, if any.

With the aforesaid directions, this petition is finally disposed of, with no order as to costs.

C.C. as per rules.