The Bombay High Court recently quashed show cause notices issued to a German textile firm for alleged misdeclaration of imported knitting machines, holding that a foreign exporter cannot be made liable for the wrongs of an importer, since the exporter’s role ends once the goods are shipped to the satisfaction of the buyer.
Justices G S Kulkarni and Aarti Sathe, on April 15, observed that the department had sought to penalise the German firm for the alleged acts of Indian importers, which is contrary to the scheme of law.
The high court was hearing a plea filed by a German firm, Karl Mayer STOLL Textilmaschinenfabrik GmbH, challenging the show-cause notices issued by customs.
“It is clear 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. In the facts of the present case, there was no role played by such an exporter about the alleged misdeclaration of the imported machines, and therefore, the show-cause notices could not be issued to Petitioner No. 1 (German firm),” the order read.
‘No liability for wrongs of exporter’
- The high court held that the responsibility for the goods after importation lies with the importer, and a foreign exporter cannot be held liable for any violations.
- It further noted that the German firm is situated outside India, and therefore, the provisions of the Customs Act did not extend to it at the relevant time.
- The court highlighted that the extra-territorial application of the Customs Act was introduced only after the 2018 amendment, and cannot be applied retrospectively to earlier transactions.
- Accordingly, the high court held that liability for classification, declaration, and payment of duty lies entirely with the importer once goods enter India.
- The court also noted that the alleged misdeclaration of the imports was much before 2018, and hence the provision of the Act would not apply in the facts of the present case.
- The high court concluded that the customs department failed to place any evidence to establish any active role or abetment by the foreign exporter.
- The Bombay High Court allowed the plea of the firm and clarified that the show cause notices should not have been issued to the German firm, and are liable to be quashed and set aside.
Importing mis-declared knitting machines
- It was placed on record that the foreign firm is a company incorporated under the laws of Germany and is engaged in the manufacturing and selling of textile machinery in Germany and internationally, including India.
- The other petitioner, in this case, is a company incorporated under the Companies Act, 1956, and provides technical and support services to the Karl Mayer Group of Companies in relation to the installation, start-up and warranty cover for machines delivered to India by the Karl Mayer Group.
- The Indian company is also engaged in assembling creels for warping machines and has a production facility for the said purpose at Ahmedabad.
- It was noted that from June 2014 to May 2017, the German firm sold warp knitting machines to certain Indian importers.
- Subsequently, the Directorate of Revenue Intelligence (DRI) started an investigation based on intelligence that certain importers in India were engaged in importing “high speed warp knitting machines” manufactured by the said firm, and the said importers were mis-declaring the machines as “fully fashioned high speed knitting machines”.
- The DRI, later, initiated an inquiry against several importers who had imported the said machines.
- Based on the DRI investigation for the period between December 2020 and May 2021, the department issued show-cause notices to the petitioners, alleging that they had aided/abetted the main noticees, who are Indian importers, to perpetuate the import fraud.
- The main noticees were different importers situated in India. Besides the main noticees, the show cause notices were also issued to the German firm.
- Being aggrieved by the said show cause notices, the present petition has been filed by the German firm and other Indian companies.
‘Notice without authority of law’
- Appearing for the German firm, advocate argued that the said show cause notices are liable to be quashed and set aside, since the same are completely without jurisdiction and without authority of law.
- It was submitted that the said show cause notices suffer from a fundamental jurisdictional defect that strikes at their very root.
- The defect is not procedural but substantive and incurable, rendering the entire proceedings non-existent, he added.
- It was further argued that the department’s assumption of authority over a person situated outside India, for a period when the statute did not extend to such persons, amounts to an impermissible exercise of power and is liable to be quashed on this ground alone.
- On the contrary, representing the department, advocate submitted that the German firm is a supplier and does business with importers pan India, and further, the firm, along with its selling agent in India, has aided and abetted the importers in the commission of the import fraud.
- It was further argued that the German firm had aided and abetted the Indian importers knowingly by changing the description of the machines which were to be imported, and thereby helped them in claiming the benefit of the exemption notifications.
Source from: https://indianexpress.com/article/legal-news/bombay-high-court-quashes-customs-notices-german-firm-10639431/
