Recovery of Duty Under Section 72 has to be examined in the light of extant provisions of Customs Act 1962 and the rulings of different fora. Lets examine the provisions and resources which lay for the decision making by the Customs Authorities in charge.
Provisions Under Section 72 of the Customs Act, 1962
SECTION 72. Goods improperly removed from warehouse, etc.—
(1) In any of the following cases, that is to say,—
(a) where any warehoused goods are removed from a warehouse in contravention of section 71;
(b) where any warehoused goods have not been removed from a warehouse at the expiration of the period during which such goods are permitted under section 61 to remain in a warehouse;
2(c) where any warehoused goods have been taken under section 64 as samples without payment of duty
(d) where any goods in respect of which a bond has been executed under 1[section 59 and which have not been cleared for home consumption or (export) are not duly accounted for to the satisfaction of the proper officer,
the proper officer may demand, and the owner of such goods shall forthwith pay, the full amount of duty chargeable on account of such goods together with interest, fine and penalties(all penalties, rent, interest and other charges) payable in respect of such goods.
(2) If any owner fails to pay any amount demanded under sub-section (1), the proper officer may, without prejudice to any other remedy, cause to be detained and sold, after notice to the owner (any transfer of the goods notwithstanding) such sufficient portion of his goods, if any, in the warehouse, as the said officer may deem fit ( select).
Sub-section 72(1)(c) has been omitted. Similarly words in bold have also been substituted .
Reading of section 72 indicates that it has two clauses , first clause prescribes conditions for demand of duty. In plain language, it talks about under what circumstances or for which contraventions in respect of warehousing goods action would be initiated for demand of duty.
Previously under Section 72(1), in four situations, occasion arises for demand of duty concerning warehousing goods which is enumerated from (a) to (d), however (c) which is mentioned in bold letters has been omitted. This left the Customs authorities to demand duty under three conditions only:
Operation of Section 72(1)(a)
Section 72(1) (a) operates where there is removal of goods in contravention of section 71 of the Act. This compel us to analyze Section 71 of the Act, which is reproduced below;
Section 71 in the Customs Act, 1962
71. Goods not to be taken out of warehouse except as provided by this Act.—
No warehoused goods shall be taken out of a warehouse except on clearance for home consumption or export or for removal to another warehouse, or as otherwise provided by this Act.
Bare perusal of Section 71 revealed that it provides certain mode of removal of goods from warehouse which may be clearance from home consumption under section 68 of the Act, or may be by way of export under section 69 of the Act or by transfer to another warehouse under 67 of the Act. Lastly, it provides for removal of warehoused goods as per the scheme of the Act, if it is prescribed by the Act.
As otherwise Provided by this Act”
Three ways of removal under section 67,68 and 69 has been expressly provided in the Act , however by adding “as otherwise provided by this Act” it widens the scope of removal of warehoused goods by any other ways if the same is provided by the Act. For example in the case of cancellation of license for the contravention of provisions of this act/rules/regulations or in violation of any conditions of license under section 58B of the Act, by the provisions of Section 58(4) of the Act, the licensee is required to remove the goods within seven days from the date on which order of such cancellation is served. This removal is not covered under section 67,68 or 69 but since is intended by legislation, therefore it will fall under last clause.
It means that if removal is under the cover of provisions of the Act, then it does not fall under the vires of Section 71 of the Act and cannot be considered as improper removal and as a result of it, Section 72(1)(a) will not be attracted.
Application of Section 72(1)(b)
Section 72(1)(b) is attracted in such scenario when the goods deposited in warehouse are not removed in permitted period or permitted extended period as per Section 61 of the Act.
Section 72(1)(c) has been omitted from the statute book, so it is redundant to discuss the same.
Section 72(1)(d)
This takes us to last sub clause i.e Section 72(1)(d), which says that in case of goods not cleared for home consumption or export and at the same time could not be duly accounted to the satisfaction of proper officer, then it will fall under the category of improper removal of goods.
Demand of Duty, Interest, Fine and Penalties
These all three situations discussed above, lead us to demand of duty by customs authorities together with interest, fine and penalties. With demand of duty, other key words are interest, fine and penalties. Interest is incidental to duty or in other words auxiliary to duty which is principal. Therefore, interest moves with duty and it is dependent on duty, therefore has no separate existence.
When Fine and Penalty can be imposed ?
In addition to the duty and interest, fine and penalty is also required to be paid by the owner of the goods. Fine and penalty will only come into scene when the confiscation will be adjudged under section 122 of the Act. At the time of redemption of goods under section 125(1) of the Customs Act, 1962, fine can be imposed and recovered in lieu of confiscation. Invocation of penal liability is subject to confiscation of the goods. This connotes, owner is required to be served with show cause notice under section 124 of the act before confiscating any goods and imposing penalty to meet the basic rule of principal of natural justice.
Whether Practice Adopted by the Customs Authorities is Correct and legal
But under warehousing provisions, practice adopted by Customs authorities is different and appears to be at variance. By the mandate of Section 72(2) of the Act, goods which are improperly removed and in the case of non-payment of demanded amount under sub-section (1), the proper officer is authorized to sell the sufficient portion of the goods equivalent to the demanded amount after detaining the goods and after giving due notice to the owner of the goods, lying in the warehouse. This option can be exercised without prejudice to any other remedy. This allows to take recourse to any other remedy which is just and proper and it contain confiscating the goods, imposing fine and invoking penal liability.
However, practice is that only duty is demanded under section 72(1) of the Act and improperly warehoused goods are sold and disposed under section 72(2) of the Act by adopting procedure given under section 150 of the Act respectively.
What it emerges that duty for improper removal of warehoused goods can be demanded by taking aid of section 72(1) and 72(2) of the Act. Section 150 of the Act which provides for sale of goods and application of sale proceeds completes the process of recovery of duty by selling the goods under auction. It may be noted that sale under Section 150 of the Act is only applicable for non-confiscated goods. What is follows that by this way there is no scope of recovery of penalty and fine and penalty both can be imposed and recovered only in case of confiscation of goods. Whereas fact of the matter is that initiation of action under 72(1) and 72(2) of the act is restricted to demand of duty and interest and often no action is initiated for recovery of fine and penalty. Then questions crosses the mind what is the purpose of insertion of words fine and penalty.
Plain reading of the section revealed that after word “together” is inserted for payment of interest , fine and penalty along with duty. It means it is mandatory to recover duty , interest, fine and penalty. Bare perusal even revealed that under no situation only duty and interest is required to be recovered. Fine and penalties are also essential ingredient of recovery under the said provisions.
One cannot be oblivious of the fact that these four words are in conjunction and wherever there is any question arises for recovery of duty respecting warehoused goods, interest , fine and penalties are also required to be recovered. But practice is at variance vis-à-vis statutory provision, whether it is justified.
Here Notice under section 72(1) and 72(2) is issued for recovery of duty and interest and then in case of non-payment of demanded amount disposal process is initiated under section 150 of the act. It is an undisputed fact that by this process duty and interest is recovered only and no occasion arises for recovery of fine and penalties. As imposition of fine only comes into picture when there is a scope of redemption of confiscated goods. Proceedings under Section 72(1) and 72(2) does not often result into confiscatory provisions as the goods are sold after being detained without applying the confiscatory provisions given under chapter XIV of the Customs Act, 1962. Initiation of action under Section 72(1) and 72(2) neither calls for confiscation under Section 111 nor for imposition of corresponding penalty under Section 112 , therefore there is no possibility of redemption under section 125 of the Act. It means action under section 72 does not give rise to imposition of fine and penalty. Then it compels us to contemplate whether insertion of fine by the legislature. serve any purpose or not.
In entire warehousing provisions, offence which falls under section 111j call for penalty under section 112 and fine under section 125 of the Act.
Section 111(j) of the Customs Act 1962
Section 111(j) is reproduced as under:
The following goods brought from a place outside India shall be liable to confiscation;
Any dutiable or prohibited goods attempted to be removed from a customs area or a warehouse without the permission of the proper officer or contrary to the terms of such permission;
Reading of the said sub-section indicated that if removal of the warehoused goods which can be either dutiable or prohibited is without the permission of the proper officer, the same is liable to confiscation. It talks about the removal which does fall squarely under the vires of section 71 of the Act. If this is the case, then question which required to be answered whether non-compliance of section 71 read with 72(1)(a) can attract provisions of section 111j as this sub-section deals with removal without the permission of the proper officer or contrary to the terms of such permission. Section 72(1)(a) is applicable when there is non-observance of section 71. It is also not undisputed that section 71 prescribed that goods can only be taken from warehouse by the permitted modes which are given under section 67, 68 and 69 or as otherwise provided by the Act. Corollary of the same is that any removal contrary to prescribed or permitted mode amount to the removal provided under Section 111j. Then in such situation goods becomes liable to confiscation and as a result, fine and penalty will be imposable. Now it is cogent why legislature has inserted words fine and penalty.
Analysis of Section 72(1)(b) and 72(1)(d) from the point of view of fine and penalty
Now it becomes imperative to examine other sub-sections 72(1)(b) and 72(1)(d) from the point of view of fine and penalty. Section 72(1)(b) deals with such goods which are lying in the warehouse beyond prescribed period or permitted extended period as lays down in section 61 of the Act. Here goods are time expired but still lying in the warehouse, giving rise to the recovery of demand of duty and interest. Since, goods are not removed from warehouse, therefore by no stretch of imagination goods can be equated with conditions given in section 111j, as neither there is attempt of removal or removed from the warehouse. Therefore, conditions given under Section 72(1)(b) never justify the imposition of fine and penalty. At the cost of repetition, it is reiterated that question of imposition of fine only comes when goods are liable to confiscation and goods are required to be redeemed. For the violation of conditions in section 72(1)(b) , section 111j cannot be invoked. In warehouse majority of the cases are of time expired bond , therefore only duty and interest is demanded.
Lastly the sub-section 71(1)(d) provides initiating action in respect of those goods which are deposited in the warehouse and importer has executed bond under section 59 and goods are neither cleared for home consumption nor for export and could not be duly accounted for. In such cases of non-accounting of goods , it becomes obvious that warehoused goods have not been cleared by two permitted ways under section 68 and 69 of the Act and still there is a failure to account the goods. Reading of the sub-section does not precisely defines reason for the non-accounting of the goods. Therefore, when the reasons are not known then how for the failure to account for such goods, liability arises to confiscate the goods, in absentia of ingredients of attempted removal or removal which is essential feature of section 111j. Non-application of confiscatory provisions would prevent to apply provisions of redemption.
From the above discussion, it is cogent that legislation has used the words duty, interest, fine and penalty correctly and appropriately.
Limited action of demand of duty and interest is also justified by the customs authorities as most of the improper removal under section 72 is of section 72(1)(b).
Some Important & Relevant Case Laws
Kesoram Rayon v Collector of Customs, Calcutta, 1996(86) E.L.T 464(S.C)– In the said case decided by Supreme Court , improper removal was described. It was observed that if the goods are lying in bonded warehouse after the expiry of permitted period or extended period , the said goods are to be treated as improperly removed. Further, in respect of said goods neither the date of demand of duty nor date of filing of ex-bond B/E is reckoned for determination of duty, the rate of duty prevalent on the date of expiry is relevant.
In SBEC Sugar Ltd v Union of India,2011(264) ELT 492(SC), the Hon’ble apex court held that rate of duty is taken which is on the date of expiry of permitted period or extended permitted period. Further, it was observed that section 15(1)(b) which is regarding determination of rate of duty and tariff valuation in force is applicable to warehoused goods which are cleared under section 68 of the Act and not in respect of goods which are cleared under section 72 of the Act. EPCG benefit was denied to importer for already imported goods but license obtained subsequently for the clearance of goods under 72 of the Act.
Pratibha Processors v Union of India, 1996(88) E.L.T 12(SC)- The S.C held that goods imported under DEEC and when wholly exempted from payment of duty at the time of clearance , then liability for payment of interest cannot be saddled on non-existing duty. It was also observed that interest is accessory to duty.
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sir what is the rate of interest under section 61 of CA and when demand notice is served u/s 72 and the owner shows up for lifting the goodst then do we have to demand separate interest or is it the same interest covered while filing x-bond BOE?