Tackling reply to SCN makes an important skill while working in Adjudication section. Getting conversant with this skill however, can go a long way for other sections too as it involves application of law in tandem with logic. You could never master the law unless applied in the face of its being challenged. Facing reply to the SCN tendered by a noticee thus, makes an important learning.
On the noticee’s part reply to the SCN is an obligatory step to demonstrate that the noticee really cares about the law of land. It is also important in his own interest as upon being satisfied with the reply, suitable relief can be extended to him by the adjudicating authority. Here is a typical example of submissions which the noticees submit through their representing advocate:
A Typical Reply to SCN from Noticee
1.The noticee says and submits that at the outset, the goods seized from the Noticee are not liable to be confiscated under Section 111 (d), (1) and (m) of the Customs Act, 1962.
2. The gold brought by the notices were not ingeniously concealed and in similar type of case the gold was released by the various authorities (details annexed)
3. The Noticee is claiming the ownership of the goods which were recovered from his possession and is ready to pay the customs duty and any other customs dues.
4. This is the first time that Noticee has brought this type of goods and there is no previous case registered against the Noticee.
5. The dutiable goods brought by the Noticee are neither restricted nor prohibited and can be released on redemption fine under section 125 of the Customs Act, 1962.
6. The Noticee says and submits that the violation, if any, is out of ignorance and technical in nature.
7. It is submitted that a plain reading of the Show Cause Notice issued by the Respondent reveals that the impugned goods are dutiable goods and not prohibited goods.
8. The Noticee submits that the Respondent has come to the conclusion that the acts and / or omissions on the part of the Noticee was to evade Customs duty. The evasion of Customs duty can be done only in respect of dutiable goods and not prohibited goods.
9. The Noticee submits that once the respondent/ department accepts that the goods are dutiable, the option of redemption of goods as provided under section 125 of the Customs Act, 1962 will have to be given to the Noticee.
10. Sub-section (1) of Section 125 of the Customs Act, 1962, is reproduced below for appropriate interpretation / understanding /analysis of the same:
SECTION 125. Option to pay fine in lieu of confiscation- (1)
“Whenever confiscation of any goods is authorised by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being in force, and shall, in the case of any other goods, give to the owner of the goods or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit.”
It is submitted that a bare perusal of the above sub-section (1) of Section 125 of the Customs Act, 1962, makes it amply clear that the Respondent is required to give the Noticee an option to pay fine in lieu of confiscation in respect of the impugned goods, which even as per the Respondent are dutiable goods.
11. The Noticee submits that under the facts and circumstances of the present case, absolute confiscation of the impugned dutiable goods would only mean interpreting or giving a meaning to the said sub section (1) of Section 125 of the Customs Act, 1962, in a manner neither authorized nor intended by the Act. Thus, redemption of dutiable goods on payment of fine in lieu of confiscation is what the Legislature in its collective wisdom has proposed vide sub-section (1) of Section 125 of the Customs Act, 1962.
12. The Noticee submits that without prejudice to the above contentions it is submitted that there are a number of judgments of the Hon’ble Apex Court, the Hon’ble High Courts and the Hon’ble Tribunal, wherein it has been held that gold is not a prohibited item and the same is restricted and therefore it should not be confiscated absolutely and option to redeem the same on redemption fine ought to be given to the person from whom it is recovered. The Noticee places reliance on some of the judgments listed below:
I. The Hon’ble Supreme Court of India in Hargovind Das K. JOSHI v/s. Collector of Customs reported in 1992 (61) E.L.T. 172 (S.C.) has observed that:
Redemption Fine – Customs – Absolute confiscation of goods by Collector without considering question of redemption on payment of fine although having discretion to do so – Matter remanded to Collector for consideration of exercise of discretion for imposition of redemption fine – Section 125 of Customs Act, 1962.
II. The Hon’ble Tribunal in the case of ALFRED MENEZES v/s COMMISSIONER OF CUSTOMS, MUMBAI reported in 2011 (236) E.L.T. 587 (Tri. – Mumbai) held that “Redemption fine – Prohibited/restricted goods, confiscation of – Power of adjudicating authority under provisions of Customs Act, 1962 to offer redemption fine in lieu of confiscation of prohibited/restricted goods confiscated – Section 125(1) ibid, clearly mandates that it is within the power of adjudicating authority to offer redemption of goods even in respect of prohibited goods – Order of Commissioner not giving any reason for concluding that adjudicating authority’s order is wrong, set aside – Section 125 ibid. [para 6)”
III. The Hon’ble Tribunal in the case of T. ELVARASAN v/s. COMMISSIONER OF CUSTOMS (AIRPORT), reported in 2011 (266) E.L.T. 167 (Mad), held that “Release of seized goods – Provisional release – Gold chains brought by petitioner from Singapore seized on the ground of non-declaration on arrival – Petitioner living abroad for more than six months and entitled to import up to 10 kgs of gold – Gold not a prohibited item – Option available to owner of goods or person from whom goods seized, to pay fine in lieu of confiscation – No evidence produced to show that petitioner not entitled to get goods released on payment of customs duty and penalty as per Notification No. 13/2003-Cus. – Impugned gold jewellery directed to be released provisionally on payment of customs duty and redemption fine – Provisional release subject to adjudication proceedings – Sections 110A, 112 and 125 of Customs Act, 1962.”
IV. The Hon’ble Tribunal in the case of YAKUB IBRAHIM YUSUF v/s. COMMISSIONER OF CUSTOMS, MUMBAI reported in 2011 (263) E.L.T. 685 (Tri. – Mumbai) held that “Confiscation – Prohibited qoods – Scope of – Term prohibited goods refers to goods like arms, ammunition, addictive drugs, whose import in any circumstance would danger or be detriment to health, welfare or morals of people as whole, and makes them liable to absolute confiscation. It does not refer to the goods whose import is permitted subject to restriction, which can be confiscated for violation of restrictions, but liable to be released on payment of redemption fine since they do not cause danger or detriments to health – Sections 111 and 125 of Customs Act, 1962. [para 5.51]
Redemption fine – Option of – Owner of goods not known – Option of redemption has to be given to person from whose possession impugned goods are recovered – On facts, option of redemption fine allowed to person who had illicitly imported gold with view to earn profit by selling it, even though he had not claimed its ownership – Section 125 of Customs Act, 1962. [para 5.6]”
V. The Hon’ble Tribunal in the case of Mohini Bhatia Vs Commissioner of Customs reported in 1999 (106) E.L.T. 485 (Tri. – Mumbai) has held that:
“We are unable to accept this submission. Clause 33 of Section 2 defines prohibited goods as any goods the export or import of which is subject to any prohibition under the Act or any other law for the time being in force, and excludes any such goods in respect of which the condition subject to which the goods are permitted to be exported or imported had been complied with. The import policy in force at the relevant time for the period 1992-97 makes a distinction between prohibited goods and restricted goods. Paragraph 10 of the policy says that the negative list of imports consists of goods, the export or import of which is prohibited restricted through licensing or otherwise, or canalised. Para 11 provides that the prohibited goods shall not be exported or imported. Para 12 provides that any goods the export or import of which is restricted through licensing. may be exported or imported only in accordance with the licence issued in this behalf. Part 1 of the negative list of goods consists of prohibited items. Gold is not included in this part. Part II consists of restricted items. Gold figures in Part II as a restricted item, the restriction being that it can only be imported in accordance with a licence or a public notice. It would, therefore, not to be correct to say that the policy prohibited import of gold. The latter part of the Clause 33 of Section 2 of the Act is in the nature of a clarification that even the goods, the import of which is prohibited are not considered to be prohibited if the condition subject to which their export or import are being complied with.”
VI. In Universal Traders v. Commissioner – 2009 (240) E.L.T. A78 (S.C.) also the Apex Court allowed redemption of exported goods being not prohibited.
VII. In Gauri Enterprises v. CC, Pune – 2002 (145) E.L.T. 706 (Tri.-Bang.): the CESTAT held that if similar goods have been released on fine earlier, selective absolute confiscation is not called for; absolute confiscation should be an exception rather than a rule.
VIII. In Shaik Jamal Basha v. Government of India – 1997 (91) E.L.T. 277 (A.P.) the Hon’ble High Court held that gold is allowed for import on payment of duty and therefore Gold in the form other than ornaments imported unauthorized can be redeemed.
IX. In VP Hameed v. Collector of Customs, Mumbai – 1994 (73) E.L.T. 425 (Tri.) it was held that there is no bar in allowing redemption of gold being an item notified under Section 123 of Customs Act, 1962 or for any other reason.
X. In P. Sinnasamy v/s. Commissioner of Customs, Chennai – 2007 (220) E.L.T. 308 (Tri. – Chennai), the Hon’ble Court allowed redemption of absolutely confiscated gold observing that option to redeem the gold to be given as there is no bar against such option by reason of goods being an item notified under Section 123 of Customs Act, 1962 or for any other reason.
XI. In Union of India Vs. Dhanak M. Ramji – 2009 (248) E.L.T. 127 (Bom.) affirmed vide 2010 (252) E.L.T. A102 (S C.): it was held that gold is not a prohibited item and discretion of redemption can be exercised to the person from whom it was recovered.
XII. In A. Rajkumariv. CC (Chennai) – 2015 (321) E.L.T. 540 (Tri.-Chennai) the redemption of 70 gold bars brought by concealing in air conditioner was allowed and fine was reduced to 14%.
XIII. In Kadar Mydin v/s. Commissioner of Customs (Preventive), West Bengal – 2001 (136) E.L.T. 758 it was held that in view of the liberalised gold policy of the Government, absolute confiscation is unwarranted and redemption can be allowed.
XIV. In Sapna Sanjeev Kohli v/s. Commissioner of Customs, Airport. Mumbai – 2008 (230) E.L.T. 305 the Tribunal observed that the frequent traveller was aware of rules and regulations and absolute confiscation of gold jewellery not warranted which may be cleared on payment of redemption fine.
XV. In Vatakkal Moosa v. collector of Customs, Cochin – 1994 (72) E.L.T. 473 (G.O.I.); Halithu Ibrahim v. CC [2002-TIOL 195-CESTAT MAD. = 2002 (148) E.L.T. 412 (Tribunal); Krishnakumari v. CC, Chennai – 2008 (229) E.L.T. 222 (Tri-Chennai); S. Rajagopal v. CC, Trichy – 2007 (219) E.L.T. 435 (Tri-Chennai); M. Arumugam v. CC, Tiruchirappalli, 2007 (220) E.L.T. 311 (Tri-Chennai) also it was held that absolute confiscation is not warranted and redemption of gold should be allowed.
XVI. In case of COMMR.OF C. EX. & S.T., LUCKNOW v/s MOHD. HALIM MOHD. SHAMIM KHAN, the latest Judgement in reported in 2018 (359) E.L.T 265 (Tri. All.) it was held as:
Redemption fine – Only prohibited goods cannot be released on payment of redemption fine – Gold not prohibited goods and cannot be confiscated absolutely – Order permitting release of such gold on payment of redemption fine in lieu of confiscation upheld – Section 125 of Customs Act, 1962. [paras 4, 5]
13. In view of above facts and circumstances of the case and Citated judgements Adjudicating authority is requested to release the goods under section 125 of Customs Act, 1962 on nominal redemption fine and personal penalty as the violation, if any, is of technical in nature.
Even though, these are usual and typical submissions/contentions of a noticee, the concerns have to be dealt with by suitable counter views valid in law. There are submissions which involve more sophisticated contentions such as requisition of cross examination etc. which would require deeper workout.
Restricting to the instant set of contentions, an appraisement of facts & circumstances in the instant case would be required. And, before you consider these contentions to address under the ‘finding and discussion’ section of brief facts (to be tabled to the adjudicating authority), things have to be looked into especially, as to why these submissions/contentions arose in first place. Below is the narration of vital aspects of the case.
Vital Aspects of the Case of Seizure that Took Place
Let us view the matter under 05 different touch stones for proper and complete appreciation of the seizure case in an alleged attempt of Gold smuggling.
1. Facts
Mr. Y coming from Dubai, holding an Indian passport is intercepted by AIU colleagues of preventor deployed at one of the international airport terminals of India after the passenger cleared himself through green channel. Personal search of Mr. Y resulted in recovery of 03 cut pieces of gold bars (totally Weighing 1500gms and valued at Rs. 45 Lakhs) from a black coloured packet wrapped in black coloured adhesive tapes.
2. Actions of Intercepting Unit
AIU seizes the recovered items after certification process by a govt valuer under a seizure Panchanama and seizure memo. Recording of statements and admissions of the intercepted traveller followed on close heels. The assessed value found to be more than Rs 20lakhs and hence Mr. Y was arrested and later released under a bond, surety and compliance of other conditions in the bail order issued by a competent authority of Customs.
3. Observations of Investigation
(I) CONTRAVENTIONS:
i) Section 77 of the Customs Act, 1962
Explanation: Section 77 of the Customs Act, 1962, the owner of any baggage shall, for the purpose of clearing it, shall make a declaration of its contents to the proper officer of Customs, in Form-I (Indian Customs Declaration Form), prescribed under Customs Baggage Declaration Regulations, 2013.
ii) Rule 3 of the Baggage Rules 2016
Explanation: Rule 3 of the Baggage Rules 2016 prescribes the limit, terms and conditions for duty free import by the individual residents. Rule 3 ibid, provides that an Indian resident or a foreigner residing in India or a tourist of Indian origin, not being an infant arriving from any country other than Nepal, Bhutan or Myanmar, shall be allowed clearance free of duty articles in his bona fide baggage, that is to say, –
(a) used personal effects and travel souvenirs; and
(b) articles other than those mentioned in Annexure-I, upto the value of fifty thousand rupees if these are carried on the person or in the accompanied baggage of the passenger:
Further, the rule 3 excludes the articles in Annexure-I
Explanation: Annexure-I to the Baggage Rules, 2016, lists “Gold or silver in any form other than ornaments.” which means that when Annexure I to the Baggage rule 2016 is read with Rule 3 of the Baggage Rule 2016, it emerges that a major Indian individual is allowed articles up to Rupee fifty Thousand only duty free and this allowance excludes gold and silver in any form but includes ornaments of gold and silver.
iii) Rule 11 & 12 of Foreign Trade (Regulation) Rules, 1993
Explanation: As per CTH 9803 of first schedule to Customs Tariff Act, 1975, “all dutiable articles imported by a passenger in his baggage” are “restricted” as per Foreign Trade Policy 2015-20, subject to the saving clause 3(1)(h) of the Foreign Trade (Exemption from application of Rules in certain cases) Order, 1993 as amended vide Foreign Trade (Exemption from application of Rules in certain cases) Order, 2017 dated 25.07.2017. The said saving clause 3(1)(h) says:
“3. Exemption from the application of rules-
(1) Nothing contained in the Foreign Trade (Regulation) Rules, 1993 shall apply to the import of any goods,
(h) by the person as passenger baggage to the extent admissible under the Baggage Rules for the time being in force:
Provided that in the case of imports by a tourist, articles of high value whose re-export is obligatory under Baggage Rules, 2016, shall be re-exported on his leaving India, failing which such goods shall be deemed to be goods the import of which has been prohibited under the Customs Act, 1962 (52 of 1962);”
iv) “Passenger Baggage” under Para 2.26 of the Foreign Trade Policy, 2015-20
Explanation: Gold bars collectively weighing 1500 grams and totally valued at Rs. 45 Lakhs plus are in such quantity and nature that it cannot be construed as bonafide household articles required for day-to-day use by Mr. Y.
(II) OTHER FINDINGS:
(i)The seized gold was handed over to him by Mr. A in Dubai for monetary considerations in lieu of carrying the seized gold and Mr. Y acted as a carrier of the recovered gold.
(ii) the passenger was into a small-time business and earned around Rs. 25K per month. He never filed income tax return as his yearly income was below the taxable limit.
(iii)The meagre income of Mr. Y did not lend him a financial capacity to purchase/possess the seized gold and the seized gold was beyond his licit purchase capacity.
(iv) During the course of investigation, he failed to produce any document regarding licit purchase of the seized gold despite being given several summons/opportunities.
(v) Mr. Y was only a carrier of the seized gold and not the owner and it was also admitted by him in his statement.
(vi) Scrutiny of Arrival/Departure details of Mr. Y revealed that during last three months he had gone abroad five times for short period of 03 to 09 days
(vii) Call Detail Records of mobile found in possession of Mr. Y revealed that he had received calls from mobile no. of Mr. A on the dates whenever Mr. Y landed in India from abroad.
(viii) Mr. Y and Mr. A were known to each other for quite some time and apparently similar activities were undertaken during previous visits also in connivance with each other.
(ix) Mr. Y kept evading the summons as he never appeared before investigation in person nor made any communication.
(III) DEFINITIONS FOUND CONTRIBUTORY
i) As per Section 2(33) of the Customs Act, 1962, “prohibited goods” are defined as any goods, the import or export of which is subject to any prohibition under this Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported have been complied with. This construes that gold being restricted goods if the conditions stipulated are not complied with, the same falls under the category of “prohibited goods”.
ii) As per section 123 of the Customs Act, 1962, burden of proof in the cases where goods are seized in the reasonable belief that they are smuggled goods lies on (i) the person from whose possession the goods were seized; and (ii) any other person who claims to be the owner thereof. The section provides the ambit of its application to gold and manufactures thereof, watches, and any other class of goods which the Central Government notifies by the Official Gazette. Under the facts on record, the passenger has failed to discharge the burden of proof, proving that the gold imported by him and put under seizure are not smuggled goods.
iii) As per section 2(39) of the Customs Act, 1962 “smuggling”, in relation to any goods, means any act or omission which will render such goods liable to confiscation under section 111 or section 113. A conjoint reading of Section 2(33), Section 123 and section 2(39) in the backdrop of facts and circumstances of the instant case gives enough ground for a balanced view to be taken in the instant case. First, the restricted imported of gold was rendered prohibited by contravention of a host of legislations and then the passenger’s failure to discharge his burden of proof established the act of his illegal import as “smuggling”.
4. Concluding Action of Investigation
A show cause notice was issued to Mr. Y to explain the authority as to why: the seized gold not be confiscated under Section 111(d), (l) and (m) of the Customs Act, 1962 and penalty not be imposed commensurately under section 112 (a)
5. ‘Question of Facts’ and ‘Question of Law’
Will Mr. Y get facility of redemption in lieu of redemption fine? Is the passenger subject to Penalty? If so, how much?
What the Contentions Require You to Address
Dwelling on the contentions tendered sets forth some imperative to be addressed. Here are the typical views on the contentions in order of the listed contentions (Not exhaustive)
1. To this contention you should be narrating the facts and circumstances referring the attraction of provisions of Customs law that makes the seized goods liable for confiscation.
2. You should be making clarity as to what makes ingenious concealment and also clarify, if the concealment is not ingenious does the extant provisions extend any relaxation or immunity to the offender (in fact none of the provisions)
3. Claiming ownership is something everybody would do from whose possession the goods have been recovered but you will have to see through the facts and circumstances under which the claim is false/ true. In any case however, if the offender is frequent traveller and the goods doesn’t fit into his day to day usage, no leniency is given.
4. You will have to address this by in view of provisions if there is any immunity (or not) for the offences committed for the first time. (in fact there is none)
5. It is required to clarify as under what provisions of the law/ policy the goods are restricted and then how the restricted goods turn to be prohibited upon non-compliance of the conditions.
6. You may use the legal maxim, “ignorantia facti excusat ignorantia juris non excusat” which means ‘ignorance of fact excuses, ignorance of law does not excuse’ and can prove your point through case laws. Also, usually the offenders are frequent travellers so ignorance of Customs law shouldn’t make an excuse.
7. Plain reading simply means keeping in mind a particular section of an Act, which is neither intent of SCN nor the spirit behind the Customs Law. Reading the entire Act and then Conjoint reading of different provisions of many different laws/regulations together is what the law requires. Attempt of evading duty could be the motive of the noticee but while doing so other provisions are automatically attracted and that makes the goods brought in bad faith a prohibited goods. You have to clarify this while addressing the contentions.
8. Highlighting the duty evasion is in respect of noticee’s motive, it is not the conclusion of SCN. Same logic as above at point 7 to be applied in addressing the contentions.
9. Same logic as above at point 7 & 8 to be applied in addressing the contentions.
10. Allowing redemption in lieu of fine obviously is not a ‘question of law’ under section 125(1) rather it is a question of facts. The section uses word “the officer adjudging it may….” which is essentially a discretion. Again, the discretions are not intended to arbitrary, they are based on appraisement of facts and circumstances. You will have to clarify what stops using the discretion in favour of notice.
11. You can write like: The adjudicating authority is bound to undertake legal appreciation of facts in view of the extant provisions and will go by spirit and wisdom intended. He is also bound not to go by the suggested interpretations carving any exception.
12. You too have to place the reliance on case laws which favour absolute confiscation as the seizure cases most often than not are made out of non- bonafide baggage goods.
In usual course, the standard OIO are already prepared in a manner to address the common contentions. The ‘discussion and findings’ part is drafted in a manners as to cover most of the usual contentions. However, if the standard draft is missing in any of the elements of noticee’s concerns, a separate para should be inserted for addressing the concerns.
Addressing the Concerns Listed within a Standard Draft Order
In case the draft of OIO is addressing the common contentions you can reflect on the contentions raised in a manner as below:
a) Coming to the written submissions dated .. given by Mr. Y through his Advocate Mr. Adv, I basically find the following:
(i)that Mr. Y doesn’t dispute the possession, concealment, non-declaration and recovery of three (03) cut pieces of the gold bars totally weighing 1500 grams and valued at Rs. 45 lakhs
(ii)He contends that the seized gold items were not concealed ingeniously.
(iv)that the gold under seizure is neither restricted nor prohibited and can be released on applicable duty u/s 125 of the Customs Act.
(v) that he places heavy reliance on a number of judgements wherein undeclared gold had been released under provisions of Section 125 and hence the similar benefit be extended to him also.
a.1) Upon going through the submissions made by the noticee, I find that a superficial and plain reading approach of the extant provisions of law has been adopted. I find that the noticee is inclined on ignoring the facts and circumstances of the instant case and essentially negates the conjoint reading of various provisions of law that are attracted in the seizure cases of baggage mode which is entirely different from the regular mode of import. Taking up a balanced perspective and a considerate view, I find that averments in the written reply dated … lack the substance and merit and every contention of the noticee has been adequately covered under foregoing paras of this order. Accordingly, I hold that the redemption cannot not be allowed in the instant case.
Please drop in your comments below in respect of the ‘question of facts’ and ‘question of law’, if any, in the instant example of the seizure case.
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