Leo Enterprises vs Commissioner of Customs and Another

Vinod K. Sharma, J.—M/s. Leo Enterprises has invoked the extraordinary equitable jurisdiction of this court, with a prayer for issuance of a writ, in the nature of prohibition, to restrain the respondents, from further detaining the imported goods, i.e., 2,320 sheets (40 pallets) of medium density fiber board covered under Bill of Entry No. 7025782/June 6, 2012. The petitioner is in the business of import trade and local trade of plywood sheets, fiber boards, etc., and has been allotted an IEC for conducting import business by the Joint Director General of Foreign Trade, Zonal Office, Chennai, Ministry of Industry and Commerce, Government of India.

The petitioner, in the course of business entered into high sea sales contract with M/s. Geetha Timbers Ply Woods Pvt. Ltd., Theni for purchase of 2,320 sheets (40 pallets) of medium density fiber board. The said M/s. Geetha Timbers Ply Woods Pvt. Ltd., Theni had entered into contract with M/s. Merbok MDF Lanka Pvt. Ltd., Sri Lanka for supply of the goods. It was during the transit of goods, that M/s. Geetha Timbers Ply Woods Pvt. Ltd., Theni entered into a high sea sales contract with the petitioner on May 28, 2012.

Clause 14 of the high sea sales contract reads as under:

Import duties and clearing charges: In view of the disposal of the goods by transfer of documents of title when the goods are on high seas in the course of import. The buyer shall arrange clearing of the goods from customs at his sole risk and responsibilities. The entire expenses, viz., customs duties clearing charges, demurrage and octroi, etc., will be borne by the buyer and paid directly to the customs and/or clearing and forwarding agents.

M/s. Geetha Timbers Ply Woods Pvt. Ltd., Theni, raised an invoice on the petitioner for a sum of USD 33,301.92, i.e., Rs. 18,63,242. The goods arrived from Sri Lanka at Tuticorin Seaport under Bill of Lading No. TALTSO 01512979, dated May 28, 2012. The petitioner, accordingly filed a Bill of Entry No. 7025782, dated June 6, 2012, u/s 46 of the Customs Act, 1962 for assessment, payment of duty, and clearance of the goods for home consumption.

The Assistant Commissioner of Customs refused to pass an order of assessment and clearance of goods vide the order dated June 8, 2012 on the ground that the goods imported under the bill of entry could be cleared only on getting clearance from the arrears section of the Commissionerate. On enquiry, it was disclosed, that the goods were withheld for recovery of revenue dues from M/s. Geetha Timbers, a partnership firm.

M/s. Geetha Timbers, which is a firm and some of its partners, are directors in M/s. Geetha Timbers Pvt. Ltd., against whom demand of differential duty on account of their imports of plain particle board from Malaysia is pending for valuation. Fine and penalties were also imposed on M/s. Geetha Timbers.

It is not disputed that M/s. Geetha Timbers filed an appeal against the order along with an application for stay. Vide the order dated May 22, 2009, the learned Tribunal, taking note of the fact that the entire demand of duty had been paid, dispensed with the condition of pre-deposit of the penalty amounts and granted stay of recovery thereof, pending the appeal. The stay is still in force.

The order of the Assistant Commissioner of Customs, in refusing to release the goods on receipt of duty and other charges is under challenge in this writ petition on the ground that the petitioner is an independent entity, which has nothing to do with M/s. Geetha Timbers and therefore, the goods of the petitioner cannot be detained for recovery from M/s. Geetha Timbers, specially when the high sea sales contract is with M/s. Geetha Timbers Pvt. Ltd., which is a company registered under the Companies Act, therefore is independent of M/s. Geetha Timbers.

It is also submitted that the petitioner entered into an agreement with M/s. Geetha Timbers Pvt. Ltd., and there is no pending demand against this company. The action, therefore is said to be arbitrary as no dues are admittedly due from the petitioner or its seller.

The order is also challenged to be in violation of section 142(1)(b) of the Customs Act.

The writ petition is opposed on the ground that under clause 14 of the high sea sales contract, the petitioner had undertaken to pay the entire expenses with customs duties, clearing charges, demurrage, etc., therefore, the goods cannot be released to the petitioner till the dues of M/s. Geetha Timbers are realised.

On consideration, I find that this writ petition deserves to succeed.

Admittedly, the petitioner has entered into a high sea sales contract with M/s. Geetha Timbers Pvt. Ltd., against whom there is no demand. Furthermore, even demand against M/s. Geetha Timbers, a partnership firm has also been stayed. Therefore, legally there is no demand, which could give jurisdiction to the second respondent to detain the goods imported by the petitioner under the high sea sales contract. The impugned order in refusing to release the goods is also contemptuous, as demand is contrary to the stay granted by the learned Tribunal, and therefore cannot be sustained in law.

The stand of the respondents that under clause 14 of the high sea sales contract, the petitioner had undertaken to clear the liability of M/s. Geetha Timbers is also the outcome of misinterpretation of clause 14 of the high sea sales contract, as the petitioner under the contract had undertaken to pay the entire expenses, i.e., customs duties, clearing charges, demurrage, etc., for the goods purchased under the contract. This cannot be interpreted that the petitioner has agreed to pay even the demand against its vendor, regarding other transactions.

The action is also arbitrary as u/s 142(1)(b) of the Customs Act, the liability of revenue arrears of other persons cannot be fastened on the petitioner.

Consequently, the order of not releasing the goods can safely be said to be totally arbitrary, being in violation of statutory provisions and thus, is hit by article 14 of the Constitution of India, therefore cannot be sustained in law.

In view of the position referred to above, the learned counsel for the respondents prays for time to get instructions for the release of goods. This case was adjourned to today (August 17, 2012).

Today, on instructions, the learned counsel for the respondents submitted that the petitioner is right in contending that the recovery due from M/s. Geetha Timbers has been stayed, therefore, there is no enforceable demand against M/s. Geetha Timbers, which could entitle the respondents to detain the goods.

The learned counsel for the respondents further states that the goods imported by the petitioner will be released, subject to the petitioner paying the assessed duties and other charges in accordance with law.

In view of the stand taken by the learned counsel for the respondents, this writ petition is disposed of by directing the respondents to release the goods of the petitioner subject to his payment of customs duty and other charges, in accordance with law, within a period of one week of the date of receipt of a certified copy of this order.

No costs. Consequently, the connected M.P. (MD) Nos. 1 and 2 of 2012 are closed.