The Bombay High Court has clarified that the responsibility post importation of goods in India rests with the importer and the foreign exporter cannot be made liable for the violation in respect thereof. As there was no role played by such exporter, i.e., Petitioner No. 1, with regard to the alleged mis-declaration of the imported machines, therefore, the show-cause notices could not be issued to Petitioner No. 1.
The Court held that once the foreign exporters (petitioners) were held not liable for penalty under Section 112 of the Customs Act, they would also not be liable under Section 114AA, which concerns use of false and incorrect material. Since neither the exporter nor the importer had submitted false information, and the entire importation and related compliance remained the responsibility of the Indian importers, foreign exporter cannot be made liable for wrongs of importer.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe observed that on the factual conspectus, liability was sought to be foisted on the petitioners merely because the importers of goods were situated in India and had allegedly mis-declared the warp knitting machines imported from Petitioner No. 1 as “fully-fashioned high-speed knitting machines” to avail exemption notifications. The Bench found that such liability had been fastened without attributing any role to the petitioners. It held that this was not the scheme of the Customs Act, and that a foreign exporter could not be made liable for the wrongs of the importer, since the exporter’s privity in relation to the goods exported from a foreign country ended once the goods were shipped to the satisfaction of the Indian importer. Upon arrival at the Indian port, the liability in relation to the goods, including customs duty and classification issues, rested entirely on the importer.
The Bench observed that even in the context of Section 1 of the Act after the 2018 amendment, the Department had not supported its case with any material evidence to establish that the foreign exporter could, in law, be held liable for any purported mis-declaration. It emphasized that Petitioner No. 1 was admittedly situated outside India and, qua such petitioner, the Act did not extend outside India at the relevant time. The amendment to Section 1, brought into force with effect from March 29, 2018, introduced extra-territorial applicability only from that date and only to the limited extent of offences or contraventions committed outside India by any person.
The Bench expressly noted that in the facts of the case, the alleged mis-declaration of imports was much prior to 2018, and therefore even the amended Section 1 would not apply. It further held that the alleged acts of the importer could not result in liability being foisted on the foreign exporter within the framework of law, particularly in view of the lack of jurisdiction of the customs officers.
Sections 17, 46 and 111(m) of the Customs Act stipulate the importer’s obligations in respect of goods imported into India. On a conjoint reading of these provisions, the Bench held that responsibility after importation of goods in India rests with the importer, and the foreign exporter cannot be made liable for violations in respect thereof. It specifically found that in the facts of the present case no role was played by Petitioner No. 1 with regard to the alleged mis-declaration of the imported machines, and therefore the show cause notices could not have been issued to Petitioner No. 1.
On penalties under Section 112, the Bench observed that there was no role attributable to the petitioners so as to make them liable. It held that the Department had neither made out a case nor established any act or omission on the part of Petitioner No. 1 rendering the goods liable to confiscation under Section 111, nor shown that Petitioner No. 1 had dealt with goods which it knew or had reason to believe were liable to confiscation. The Department had sought to penalize the petitioners for alleged mis-declaration by Indian importers, which the Bench found to be contrary to law and outside the conditions contemplated under Section 112. The allegation of abetment and aiding the Indian importers was also held not to have been established, and no evidence had been adduced to show any active role played by the petitioners in the alleged mis-declaration.
Briefly, the Petitioner No. 1 was a company incorporated under the laws of Germany and was engaged in manufacturing and selling textile machinery in Germany and internationally, including India. Petitioner No. 2 was incorporated under the Companies Act, 1956 and was engaged in providing technical and support services for installation, start-up and warranty cover for machines delivered to India by the Karl Mayer Group, and also assembled creels for warping machines at its Ahmedabad production facility.
During the period from June 2014 to May 2017, Petitioner No. 1 sold warp knitting machines to certain Indian importers. The Directorate of Revenue Intelligence, Ludhiana initiated investigation on intelligence that some importers in India were importing “high speed warp knitting machines” manufactured by Petitioner No. 1, but were mis-declaring them as “fully-fashioned high-speed knitting machines” and claiming exemption under Notification No. 12/2012-CE dated March 17, 2012 and/or Notification No. 16/2015 dated April 1, 2015, as applicable.
On the basis of the investigation, DRI-L initiated inquiry against several Indian importers and recorded statements of authorized representatives of such importers in relation to import of the machines under bills of entry. It was alleged that the importers had mis-declared the description of the machines. The Chief Executive Officer of Petitioner No. 2 stated that Petitioner No. 2 was not connected with the imports in question and that the machines were directly imported by various importers from foreign suppliers, namely Petitioner No. 1.
On July 1, 2020, Petitioner No. 1 was rebranded as “Karl Mayer STOLL Textilmaschinenfabrik GmbH” after merger with STOLL, and sale of its machines in India was exclusively handed over to M/s. A.T.E Enterprises Private Limited. Further, on December 30, 2020, December 31, 2020 and March 5, 2021, Orders-in-Original were passed in the cases of nine Indian importers to whom Petitioner No. 1 had sold machines, wherein the show cause notices against the petitioners were dropped on the ground that there was no jurisdiction for imposition of penalty against them.
Between December 31, 2020 and May 18, 2021, based on the DRI-L investigation, the respondents issued show cause notices under Section 124 read with Section 28 of the Customs Act to the petitioners, alleging that they had aided and abetted the Indian importers in perpetrating import fraud. Besides the main noticees, namely the Indian importers, show cause notices were also issued to Petitioner No. 1 through Petitioner No. 2, and summons were issued to Petitioner No. 2 seeking information despite its asserted non-involvement in the sales. The notices proposed penalties under Sections 112 and 114AA of the Act.
Appearances:
Advocates Abhishek A. Rastogi, Pooja M. Rastogi, Meenal Songire, Aarya More, and Chayank Bohra, for the Petitioner/ Taxpayer
Advocates Nitee Punde and Mamta Omle, for the Respondents/ Revenue
