Case BriefsSupreme Court

Supreme Court: In the case relating to confiscation of a large quantity of yellow peas imported from China, the 3-judge bench of AM Khanwilkar, Dinesh Maheshwari* and Krishna Murai, JJ has held that the goods in question are to be held liable to absolute confiscation but with a relaxation of allowing reexport, on payment of the necessary redemption fine and subject to the importer discharging other statutory obligations. 

Noticing that the personal interests of the importers who made improper imports are pitted against the interests of national economy and more particularly, the interests of farmers, the Court said, 

“When personal business interests of importers clash with public interest, the former has to, obviously, give way to the latter.” 

Notifications at the core of the Controversy

In March, 2019, the Central Government, in exercise of its power under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) read with paragraphs 1.02 and 2.01 of the Foreign Trade Policy 2015-2020, amended the import policy conditions relating to various items of Chapter 7 of the Indian Trade Classifications (Harmonized System) 2017, Schedule I by way of S.O. Nos. 1478(E), 1479(E), 1480(E) and 1481(E) dated 29.03.2019. These were followed by the trade notice dated 16.04.2019 by the DGFT.

These notifications were earlier challenged were challenged for being in the nature of ‘quantitative restrictions’ under Section 9A of the FTDR Act, which could be only imposed by the Central Government after conducting such enquiry, as is deemed fit, and on being satisfied that the “goods are imported into India in such quantities and under such conditions as to cause or threatens to cause serious injury to domestic industry.”

However, the Supreme Court, in Union of India v. Agricas LLP, 2020 SCC OnLine SC 67, held them valid as they were issued in accordance with the power conferred in the Central Government in terms of sub-section (2) to Section 3 of the FTDR Act. It was also held that the powers of the Central Government by an order imposing restriction on imports under sub-section (2) to Section 3 is not entirely curtailed by Section 9A of the FTDR Act.

Read our detailed report on the Agricus verdict here

9A of FTDR Act does not negate Central Govt’s power to impose restrictions on imports under Section 3(2): SC

Why do the goods in question fall under the ‘prohibited goods’ category?

Sub-section (3) of Section 3 of the FTDR Act applies to the goods in question and, for having been imported under the cover of the interim orders but, contrary to the notifications and the trade notice issued 92 under the FTDR Act and without the requisite licence, these goods shall be deemed to be prohibited goods under Section 11 of the Customs Act; and all the provisions of the Customs Act shall have effect over these goods and their import accordingly.

Further, only the particular restricted quantity of the commodities covered by the said notifications could have been imported and that too, under a licence. Therefore, any import within the cap (like that of 1.5 lakh MTs) under a licence is the import of restricted goods but, every import of goods in excess of the cap so provided by the notifications, is not that of restricted goods but is clearly an import of prohibited goods.

Hence, the goods in question, having been imported in contravention of the notifications dated 29.03.2019 and trade notice dated 16.04.2019; and being of import beyond the permissible quantity and without licence, are ‘prohibited goods’ for the purpose of the Customs Act.

Why are the goods in question liable to absolute confiscation?

The true scope of Section 125 of the Customs Act, 1962 comes into picture to decide this question. The latter part of Section 125 of the Customs Act obligates the release of confiscated goods (i.e., other than prohibited goods) against redemption fine but, the earlier part of this provision makes no such compulsion as regards the prohibited goods; and it is left to the discretion of the Adjudicating Authority that it may give an option for payment of fine in lieu of confiscation. It is innate in this provision that if the Adjudicating Authority does not choose to give such an option, the result would be of absolute confiscation.

In the case at hand, the Adjudicating Authority had given such an option of payment of fine in lieu of confiscation with imposition of penalty whereas the Appellate Authority has found faults in such exercise of discretion and has ordered absolute confiscation with enhancement of the amount of penalty.

However, an authority acting under the Customs Act, when exercising discretion conferred by Section 125 thereof, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The purpose behind leaving such discretion with the Adjudicating Authority in relation to prohibited goods is, obviously, to ensure that all the pros and cons shall be weighed before taking a final decision for release or absolute confiscation of goods.

“It is true that, ordinarily, when a statutory authority is invested with discretion, the same deserves to be left for exercise by that authority but the significant factors in the present case are that the Adjudicating Authority had exercised the discretion in a particular manner without regard to the other alternative available; and the Appellate Authority has found such exercise of discretion by the Adjudicating Authority wholly unjustified.”

In the present case, it was evident that the Adjudicating Authority’s orders were not passed in a proper exercise of discretion. The Adjudicating Authority did not even pause to consider if the other alternative of absolute confiscation was available to it in its discretion as per the first part of Section 125(1) of the Customs Act and proceeded as if it has to give the option of payment of fine in lieu of confiscation.

“Such exercise of discretion by the Adjudicating Authority was more of assumptive and ritualistic nature rather than of a conscious as also cautious adherence to the applicable principles. The Appellate Authority, on the other hand, has stated various reasons as to why the option of absolute confiscation was the only proper exercise of discretion in the present matter.”

Importer’s personal interest versus National Interest

Clearly, in the present case, the personal interests of the importers who made improper imports were pitted against the interests of national economy and more particularly, the interests of farmers. Hence, this factor alone was sufficient to find the direction in which discretion ought to be exercised in these matters.

Hence, the discretion in the cases of present nature, involving far-reaching impact on national economy, cannot be exercised only with reference to the hardship suggested by the importers, who had made such improper imports only for personal gains.

“The imports in question suffer from the vices of breach of law as also lack of bona fide and the only proper exercise of discretion would be of absolute confiscation and ensuring that these tainted goods do not enter Indian markets. Imposition of penalty on such importers; and rather heavier penalty on those who have been able to get some part of goods released is, obviously, warranted.”

The Court, hence, said that

Directions

  • The subject goods are held liable to absolute confiscation but, in continuity with the order dated 18.03.2021 in these appeals, it is provided that if the importer concerned opts for re-export, within another period of two weeks from today, such a prayer for reexport may be granted by the authorities after recovery of the necessary redemption fine and subject to the importer discharging other statutory obligations. If no such option is exercised within two weeks from the date of the order, the goods shall stand confiscated absolutely.
  • The respondent-importers shall pay costs of this litigation to the appellants, quantified at Rs. 2,00,000/- (Rupees two lakhs) each.

“The respondent-importers being responsible for the improper imports as also for the present litigation, apart from other consequences, also deserve to be saddled with heavier costs.”

[Union of India v. Raj Grow Impex LLP,  2021 SCC OnLine SC 429, decided on 17.06.2021]


*Judgment by: Justice Dinesh Maheshwari 

Know Thy Judge | Justice Dinesh Maheshwari

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar, Dinesh Maheshwari and Sanjiv Khanna, JJ has held that the provisions of Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) are in addition to, and not in derogation of, the provisions of any other law for the time being in force and that Section 9A of the FTDR Act does not elide or negate the power of the Central Government to impose restrictions on imports under sub-section (2) to Section 3 of the FTDR Act.

Issue before the Court

The notifications dated 29th March 2019 bearing S.O. Numbers. 1478-E,1479-E, 1480-E and 1481- were challenged for being in the nature of ‘quantitative restrictions’ under Section 9A of the FTDR Act, which could be only imposed by the Central Government after conducting such enquiry, as is deemed fit, and on being satisfied that the “goods are imported into India in such quantities and under such conditions as to cause or threatens to cause serious injury to domestic industry.” Further, in exercise of power under sub-section (3) to Section 9A the Central Government has framed the Safeguard Measures (Quantitative Restrictions) Rules, 2012, that prescribe mandatory and detailed procedure for initiation, investigation, hearing to parties and adjudication by the Authorised Officer, which statutory mandate has not been followed.

On applicability of Section 3(2) of the FTDR Act on imposition of quantitative restrictions on imports or exports

Section 3 of the FTDR Act, as enacted, had undergone amendments by addition of proviso to sub-section (2) and by insertion of sub-section (4) vide Act 25 of 2010.

Sub-section (1) of Section 3 states that the Central Government may, by an Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. It is a general provision which has no reference to GATT-1994. It authorises the Central Government to publish an order in the Official Gazette for development and regulation of foreign trade, i.e. imports and exports.

Sub-section (2) states that the Central Government can, by an order in the Official Gazette, make a provision for prohibiting or restricting or otherwise regulating, in all or specified cases and subject to such exceptions, if any, the import or export of goods and after the amendment vide Act 25 of 2010, services or technology.

“Sub-section (2) to Section 3, therefore, authorises the Central Government to, by an Order published in the Official Gazette, make provisions restricting the imports or exports. Imposition of quantitative restrictions on imports or exports would clearly fall within sub-section (2) to Section 3 of the FTDR Act.”

On Section 9A of the FTDR Act being an escape provision

Section 9A has to be interpreted as an escape provision when the Central Government i.e. the Union of India may escape the rigours of paragraph (1) of Article XIX of General Agreement on Tariff and Trade (GATT)-1994. Section 9A is not a provision which incorporates or transposes paragraph (1) of Article XI into the domestic law either expressly or by necessary implication. To hold to the contrary, would mean holding that the Central Government has no right and power to impose ‘quantitative restrictions’ except under Section 9A of the FTDR Act. This would be contrary to the legislative intent and objective.

“Section 9A of the FTDR Act does not elide or negate the power of the Central Government to impose restrictions on imports under sub-section (2) to Section 3 of the FTDR Act.”

Conclusion

The impugned notifications would be valid as they have been issued in accordance with the power conferred in the Central Government in terms of sub-section (2) to Section 3 of the FTDR Act. The powers of the Central Government by an order imposing restriction on imports under sub-section (2) to Section 3 is not entirely curtailed by Section 9A of the FTDR Act.

[Union of India v. Agricas LLP, 2020 SCC OnLine SC 675, decided on 26.08.2020]