In Nalin Choksey v. Commissioner of Customs, the SC held that subsequent purchasers aren't liable for customs duty evasion by importers. It ruled that liability arises at importation, not ownership transfer, and set aside duties imposed on the appellant.
Citation: 2024 INSC 933
Date of Judgment: 27th November, 2024
Court: Supreme Court of India
Bench: B.V. Nagarathna (J), N Kotiswar Singh (J)
Facts
- The case revolves around a Porsche Carrera car's import and subsequent transactions. Initially imported by Sri Jalaludheen Kunhi Thayil on June 28, 2002, the vehicle was sold to Sri Shailesh Kumar in 2003. In October 2004, the appellant, Nalin Choksey, became the car's owner.
- A Show-Cause Notice was issued on June 27, 2007, by the Customs Department to the importer, the first purchaser, the appellant, and a broker, Sri Haren Choksey (the appellant's brother). The notice alleged misdeclaration of the car's model and year of manufacture, tampering with the chassis number, and undervaluation, leading to an alleged evasion of customs duty amounting to ₹17,92,847.
Decision of the Commissioner of Customs (Original Authority)
The Commissioner of Customs, in an order dated January 29, 2008, determined that there was misdeclaration of the Porsche Carrera's model and year of manufacture, along with tampering with the chassis number and undervaluation, which led to an evasion of customs duty amounting to ₹17,92,847. The order imposed the differential customs duty on the importer and the subsequent purchasers, including the appellant, holding them jointly and severally liable.
The car was confiscated under the provisions of the Customs Act, 1962, but the Commissioner allowed its redemption upon payment of a fine and the due customs duty.
Decision of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT)
The Tribunal dismissed the appeal and upheld the findings of the Commissioner, affirming the liability of the appellant for the differential duty and the confiscation of the car.
Decision of the High Court
The High Court also dismissed the appeal under Section 130 of the Customs Act, 1962, concurring with the lower authorities that the appellant, as the subsequent owner of the car, was jointly liable for the customs duty evasion and the consequences of misdeclaration and undervaluation.
Decision of the Supreme Court
The Supreme Court delivered its judgment on the matter, holding that a subsequent purchaser of goods is not liable for customs duty shortfalls arising from mis declarations made by the original importer. The Court clarified that the Customs Act, 1962 does not impose a statutory liability on subsequent owners to discharge any customs duty evasion by the importer. It emphasized that the customs duty liability is linked to the act of importation and the person who is the "importer" as defined under the Act. Therefore, as a subsequent purchaser of the Porsche Carrera, the appellant could not be held liable for the differential customs duty assessed due to misdeclaration or undervaluation by the original importer.
The Court further observed that the Commissioner of Customs and the lower judicial bodies erred in applying the concept of "joint and several liability" to the appellant without any statutory basis under the Customs Act. While the confiscation of the car was found to be justified under Section 111 of the Act due to misdeclaration, the appellant's liability could not extend to customs duty payment. The Supreme Court ruled in favor of the appellant, allowing the appeal, and set aside the decisions of the lower courts and tribunals insofar as they imposed liability for differential customs duty on the appellant.
Key legal issues discussed
1. Is a subsequent purchaser liable for customs duty shortfalls due to misdeclaration by the original importer?
No
The Supreme Court concluded that liability for customs duty arises at the time of importation and is connected to the importer who filed the declaration. In this case, the appellant was a subsequent purchaser and had no role in the misdeclaration or evasion of customs duty at the time of import. The Customs Act, 1962, does not contain any provision that imposes a statutory liability on subsequent purchasers for customs duty shortfalls due to misdeclaration by the original importer.
In Paragraph 11, the Court reviews the definition of importer in the Customs Act, specifically Section 2(26), which includes owners, beneficial owners, or anyone holding themselves out as the importer between the time of importation and clearance for home consumption. The Court notes that the appellant was not involved in the importation and was only a subsequent purchaser, thus not falling under the definition of an importer liable for customs duty.
Paragraph 13 examines Section 125 of the Customs Act and its provision for payment of a fine instead of confiscation of goods. The Court emphasizes that the appellant, not the owner or importer, could not be held liable for the customs duty shortfall under Section 125, as the appellant did not fall within the scope of "owner" as per the Customs Act.
"Hence, the appellant herein cannot be construed to be the owner of the vehicle, and hence, he does not fall within the scope and ambit of Section 125 of the Customs Act, 1962."
2. Can the concept of "joint and several liability" be applied to subsequent purchasers in customs matters?
No
The Court emphasized that customs liability is a statutory liability governed strictly by the provisions of the Customs Act, 1962. The Act does not contemplate extending liability to a subsequent purchaser without involvement in the original import process or misdeclaration. The concept of joint and several liability cannot be read into the Customs Act, as it would impose an unfair burden on parties not responsible for the original wrongdoing.
The question of whether the concept of "joint and several liability" can be applied to subsequent purchasers in customs matters is addressed in Paragraphs 12 to 16 of the judgment. Paragraph 12 explains that while Section 28(1) of the Customs Act can apply to an "importer" liable for short-payment of duty, the appellant, as a subsequent purchaser, was not the original importer. Therefore, the joint and several liability concept does not apply to the appellant in this case since he did not partake in the importation process. Paragraph 16 concludes that the appellant is not liable for the customs duty shortfall, emphasizing that he was merely a subsequent purchaser and not the person responsible for the importation or misdeclaration. The judgment restores the decision of the Appellate Tribunal, which had ruled in favor of the appellant.
"The very initiation of the proceedings against the appellant herein under the provisions of Customs Act by summoning him by issuance of Show-Cause Notice and subsequent seizure and confiscation of the vehicle in question are not by law and are unlawful."
Here, the appellant could not be considered jointly and severally liable for the customs duty shortfall, as he was not involved in the importation or the misdeclaration of the goods.
3. Was the confiscation of the vehicle under Section 111 of the Customs Act justified?
Yes
The Supreme Court upheld the confiscation of the vehicle because it was imported in violation of the provisions of the Customs Act due to misdeclaration. Section 111 allows the confiscation of improperly imported goods. However, the Court clarified that confiscating the vehicle does not equate to imposing customs duty liability on the subsequent purchaser, as the latter was not a party to the act of misdeclaration or evasion. The confiscation is a penalty for the violation committed by the original importer, not a basis for transferring the liability. Paragraph 14 discusses Section 125 of the Customs Act, which gives the option to pay a fine instead of confiscation, provided the goods are not prohibited. The court noted that while confiscation was justified due to the short payment of customs duties, the appellant, as a subsequent purchaser, was not liable to pay the duty because he was not the original importer. Paragraph 16 concludes that the proceedings for confiscating the vehicle against the appellant were not in accordance with the law because the appellant was not the owner under the Customs Act or the Motor Vehicles Act. The court stated that the confiscation could not be applied to him as he was not liable for the short payment of customs duties.
"The very initiation of the proceedings against the appellant herein under the provisions of Customs Act by summoning him by issuance of Show-Cause Notice and subsequent seizure and confiscation of the vehicle in question are not in accordance with law and are unlawful."
