S. Murugappan

S. Murugappan on the recent circular on provisional release of seized goods by Customs

THE Finance Ministry has come out with Circular No. 33 (dated August 2, 2005) for providing provisional release of seized goods meant for export.

This is on similar lines to a circular issued last year for provisional release of seized goods under import (Circular No. 22 of March 3, 2004). Based on representations from trade, the Ministry has come out with these circulars to enable provisional release of seized goods which are liable for confiscation.

Goods imported and pending clearance can be confiscated by Customs authorities on account of any violation of the Customs Act or any other law in force.

Wrong description of the goods imported, mis-declaration of value, suppression of the actual quantity imported, and so on, can be the reasons leading to such confiscation. Goods attempted to be exported also can be confiscated for similar reasons before they leave India.

Orders for confiscation of goods can be passed only upon completion of adjudication proceedings. To enable such confiscation, the goods under question are first seized by the authorities.

After seizure, the adjudication proceedings take place by way of issue of notice, hearing of the importer/exporter, and so on. All goods cannot be absolutely confiscated without any option to redeem them on payment of appropriate fine. Except goods which are totally prohibited or banned, in respect of all other goods, option to redeem them is to be given to the importers/exporters.

The adjudication proceedings usually consume time and, as such, the imported goods or goods attempted to be exported languish in the port in the meantime.

In many cases, the proceedings even take years for completion. The goods may be perishable in nature or their quality may deteriorate with continued storage. Under such circumstances, it is for nobody's benefit to keep them gathering dust in the port or in a warehouse.

If goods are allowed to be cleared provisionally, then, they will not be available for confiscation and, hence, there can be difficulty for passing orders confiscating them. However, actual confiscation of the goods and confiscability of the goods are two different things. If authorities hold that the goods are liable for confiscation, then the consequences will follow.

Hence, even if goods are released on the strength of undertakings by importers/exporters still action can be taken against them on the basis of such undertakings. This position has been confirmed by the Supreme Court in the Weston Components Ltd vs Commissioner of Customs, New Delhi (2000 (115) ELT 278 SC) case.

Permitting clearance of seized goods provisionally is beneficial in several ways:

Any damage or deterioration to the goods because of continued storage can be avoided. Perishable items can be cleared immediately so that the goods are not lost at the first instance.

There was a case of seizure of tobacco when tobacco was an excisable commodity, and the authorities left it in their storeroom for months. After completion of proceedings and when the bags were opened, there were only rotten leaves. The assessee moved the court and got a good sum as compensation from the department.

In respect of export goods, usually there are stringent shipment and delivery schedules imposed by the buyers, and in case of delays, the orders are liable to be cancelled. Thus, if export goods are not released in time, it can mean loss of business to exporters. In such cases, provisional export is the way out.

The burden of heavy demurrage charges and storage charges can be avoided by allowing provisional release. In the International Airports Authority of India vs Grand Slam International (1995 (77) ELT 753 SC) case, the Supreme Court held that the Customs are not empowered to debar the custodian of the imported goods from collecting demurrage charges, even if the delay in clearance is not because of the importer's fault.

The Delhi High Court, in Agrim Sampada Ltd. & Anr. vs Union of India & Ors. (2004 93 ECC 343 Delhi), has held that when the importer is not at fault and if goods are detained in the port trust premises, it is the responsibility of the Customs department to pay the demurrage charges.

In the Shipping Corpn. of India Ltd vs C. L. Jain Woolen Mills (2001 129 ELT 561 SC) case, the Supreme Court again observed that the custodian of the imported/exported goods has the right to recover the demurrage and detention charges and when an innocent importer is not liable to pay such charges, the Customs authorities are bound to bear the demurrage charges.

Thus, ultimately if it is found that there are no violations committed by the importers/exporters, then the Customs will be bound to pay the detention charges.

Regular removal of goods from the port area will ease the congestion in the ports. If goods are detained for months pending proceedings by Customs authorities, it only creates artificial congestion in the ports. However, for these instructions relating to provisional release of seized goods to have any real impact, further clarifications need to be provided and changes effected.

For provisional release of the seized goods, one cannot find any specific provision in the Customs Act as of now. In a circular issued on January 2, 2003, the Finance Ministry stated that the power to release seized goods emanates from the power to seize. However, it is to be noted that, when authorities are empowered to seize the goods, the same authorities do not have power to adjudicate the cases relating to such seizure and, therefore, the subsequent proceedings of determining the liability and ordering of release of the goods in case no violation is found, vests with some other authority.

The provisions of Customs Act, as of now, contemplate adjudication proceedings by competent authority after seizure of goods.

Thus any release can be upon completion of adjudication proceedings. In fact, in the erstwhile Central Excise Rules, 1944, Rule 206 specifically granted powers for provisional release of seized goods by the adjudicating authority, under Central Excise law. Hence, instead of invoking inherent powers, it will be appropriate that such provisions are made explicit in the Customs Act and Regulations.

In this context, it is to be noted that provisional assessment contemplated in Section 18 of the Customs Act does not cover provisional release of goods, which are liable for confiscation for contravention of law and this distinction has been explained by the Delhi High Court in the Raghunath International Ltd vs Collector of Customs (1996 81 ELT 31 Delhi).

The circular issued now refers to execution of bond for an amount equivalent to the value of seized goods, probable fine and penalty which might be imposed for effecting release of goods. In terms of Section 125 of Customs Act, the redemption fine cannot exceed the market value of the goods less any duty thereon.

Hence, under such circumstances, the need to execute a bond covering the value of the goods as well as the probable fine is not called for and it will definitely put undue burden on the importers/exporters and will make any provisional release of goods itself difficult.

The Circular is silent regarding the quantum of surety/bank guarantee to be taken. For any provisional clearance of the goods, Customs authorities insist on security and bank guarantee and in, general, it is for 100 per cent of the value, fine and anticipated penalty. Banks nowadays insist on 100 per cent margin money for providing guarantee and, therefore, furnishing of total guarantee will be as good as paying the fine and penalty upfront. This makes the option of provisional release an illusion.

In similar circumstances, in the circular issued on January 2, 2003, in respect of release of goods in terms of Central Excise Rules, the Board itself stipulated furnishing of only 25 per cent security.

The latest circular on provisional clearance of export goods and the previous circular issued in March 2004 relating to provisional release of imported goods are silent on the quantum of security.

This leaves lot of discretionary powers for the authorities who, out of caution and revenue bias, are prone to insist on higher security, thus leaving the scheme impracticable.

There was a case of a Commissioner demanding a guarantee of Rs 1.5 crore for considering provisional release of goods worth Rs 10 lakhs. In this case, the dispute related to demand of antidumping duty and the importer could not provide the guarantee asked for. But ultimately, when the case was decided, the demand was dropped.

There is no timeframe stipulated in the circulars for considering provisional release of the goods. When goods are pending for months on end, in several cases pending completion of adjudication proceedings, it is but appropriate to stipulate a timeframe for the authorities to decide requests for provisional release of goods.

(The author is a Chennai-based advocate.)

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