LLM Group 2 Business Law Law Relating to Customs and Foreign Exchange 2018 Question Paper with Solutions

For full marks, cover: the definition of smuggling in section 2(39) and why it is defined by reference to confiscation rather than by a description of conduct, which is the structural insight the question is built on; the grounds in section 111 grouped rather than recited; the difference between confiscation of goods and penalty on a person; section 124 as the gateway; then section 125 in detail, because the question names it, with the may and shall distinction, the ceiling on the fine, the 2018 time limit, and the continuing duty liability; and section 126 vesting with section 150 sale.

"Smuggling" is defined by its consequence, not by its conduct

Section 2(39) defines "smuggling", in relation to any goods, as any act or omission which will render such goods liable to confiscation under section 111 or section 113. That definition is circular in appearance and deliberate in substance, and an answer that notices this earns its opening marks.

The definition matters outside this Act as well, because the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 borrows the customs concept for its preventive detention jurisdiction, and section 123, which reverses the burden of proof for notified goods, is worded by reference to a reasonable belief that the goods are smuggled goods.

Section 111: the grounds of confiscation of improperly imported goods

Section 111 lists in clauses (a) to (o) the circumstances in which goods brought from a place outside India become liable to confiscation. Grouping them is far better than reciting them.

Group one, the place and manner of arrival. Clause (a) covers goods unloaded or attempted to be unloaded at any place other than a customs port or customs airport appointed under section 7 for the unloading of such goods. Clause (b) covers goods imported by land or inland water through a route other than a route specified under section 7(c). Clause (c) covers dutiable or prohibited goods brought into any bay, gulf, creek or tidal river for the purpose of being landed at a place other than a customs port. Clause (f) covers goods not included in the import manifest or import report where required.

Group four, unauthorised dealing and breach of condition. Clause (j) covers dutiable or prohibited goods removed or attempted to be removed from a customs area or a warehouse without the permission of the proper officer or contrary to the terms of that permission; clause (k) covers goods which do not correspond with the entry where a person has entered them; and clause (o) covers goods exempted, subject to a condition, from duty or a prohibition, in respect of which the condition is not observed unless the non-observance was sanctioned by the proper officer.

The penalty provisions must be distinguished from confiscation and named. Section 112 imposes a penalty on any person who does or omits to do any act rendering goods liable to confiscation under section 111, or who acquires possession of or deals with such goods, and it is quantified by reference to the duty sought to be evaded or the value of the goods.

Section 125: the option to pay a fine in lieu of confiscation

Section 125 is the safety valve of the whole confiscation scheme, and the distinction it draws is its point.

Where the goods are prohibited, the option is discretionary; where they are not, it is mandatory. The section provides that whenever confiscation of any goods is authorised by the 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 the owner is not known, to the person from whose possession or custody the goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit.

The reasoning behind the distinction is worth a sentence. Where the goods are not prohibited, the State's interest is fiscal, and forfeiting goods that could lawfully have been imported on payment of duty would be a punishment out of proportion to the wrong; so the owner must be allowed to redeem them. Where the goods are prohibited, the State's interest is regulatory, and to compel redemption would be to allow a person to buy his way into possession of goods the law says may not be here at all; so the officer retains a discretion to refuse.

Section 125(3), inserted with effect from 29 March 2018, fixed a time limit that had been missing for fifty six years. Where the fine is not paid within one hundred and twenty days from the date of the option, the option becomes void, save where an appeal against the order is pending. Before that amendment an option could be left unexercised indefinitely while the goods deteriorated in a customs warehouse and the department could neither release nor dispose of them.

Section 126 completes the sequence. Where goods are confiscated they vest in the Central Government, and the proper officer takes and keeps possession. Section 150 governs sale of the goods and applies the proceeds in a fixed order: first the expenses of sale, then freight and other charges, then duty, then charges due to the person having custody, then any amount due from the owner, and only then is the balance paid to the owner.

Why it bears on this question. Section 2(39) defines smuggling by reference to liability to confiscation under section 111, so a confiscation proceeding must establish the facts that attract one of its clauses. This decision fixes who must do so and how: where section 123 does not apply the burden is on the department, and it is discharged on the totality of the circumstances, unexplained possession of foreign goods being capable of supplying the proof.

The authority on the penalty that accompanies confiscation

On quantum and on the exercise of the power to penalise at all, the governing authority is Hindustan Steel Ltd v. State of Orissa, (1969) 2 SCC 627, decided on 4 August 1969. A government undertaking sold bricks, steel and cement, which it had procured for its own construction, to the contractors building its factory, and was assessed to sales tax as a dealer and penalised for failing to register. It was held liable to the tax.

Conclusion

Conclusion. The structure of this part of the Act is easy to miss and it decides the answer. "Smuggling" in section 2(39) is not defined by conduct at all but by consequence: it is any act or omission which renders goods liable to confiscation under section 111 or section 113. That makes the concept far wider than clandestine landing, so that a misdescribed consignment openly presented, or one imported under an exemption whose condition is broken, is smuggled goods for the purposes of the Act and of section 123's reverse burden and of preventive detention under COFEPOSA.

Section 111 then supplies the content in fifteen clauses, which fall into four groups: the place and manner of arrival, prohibition under this or any other law through clause (d) read with section 11, concealment and misdeclaration, and unauthorised removal or breach of an exemption condition. Confiscation under section 111 is directed at the goods; sections 112, 114A and 114AA punish the person separately and cumulatively; and section 124 makes a written notice stating the grounds, a representation and a hearing conditions precedent to either, with section 110(2) fixing a six month window where the goods were seized.