Full Judgment Text
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CASE NO.:
Appeal (civil) 683 of 2008
PETITIONER:
Union of India
RESPONDENT:
Anil Chanana & Another
DATE OF JUDGMENT: 25/01/2008
BENCH:
S.H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
(Arising out of S.L.P. (C) No.10058 of 2007)
KAPADIA, J.
Leave granted.
2. This appeal is directed against judgment and order dated
17.10.06 in Writ Petition (C) No.12912 of 2006 passed by the
Delhi High Court whereby the writ petition filed by Union of India
against the Order dated 25.5.06 of the Chief Commissioner of
Customs (DZ) in a Compounding Case stood dismissed. By the
impugned judgment, High Court has upheld Order
No.2/CCC(DZ)/SCM/2006 passed by Chief Commissioner of
Customs (Compounding Authority) compounding the offences
under Sections 132 and 135(1)(a) of the Customs Act, 1962.
3. On the basis of specific information Anil Chanana-
respondent No. 1, who alighted from British Airways\022 flight from
London and walked through Green Channel, was intercepted by
DRI Officers at the exit gate of the arrival hall of IGI Airport on
11.8.04. On personal search, two sets of diamond earrings were
recovered from his coat pocket along with US$1900. Further, an
invoice dated 10.8.04 evidencing sale of such earrings to
respondent No.1-Anil Chanana along with VAT Declaration Form
filed by Anil bearing stamp of Customs Authority, London, was
also recovered. Further, the search of his baggage resulted in
recovery of two empty plastic jewellery boxes kept inside two
cardboard boxes (containers). The value of two pair of diamond
earrings mentioned in invoice dated 10.8.04 was of #1,40,847.41
equivalent to Rs.1,16,90,300. On 12.8.04 Anil\022s statement was
recorded under Section 108 of the Customs Act, 1962 in which
he stated that the said earrings were gifted to him by his friend in
London. The name of his friend was Bhupendra Kansagara whom
he had met for the first time three years earlier; that, he got VAT
Declaration Form from British Customs so that he could get
refund of VAT; that, on arrival he did not declare the value of
dutiable goods in the Customs Declaration Form; that though he
was a frequent traveller he was not fully aware of Customs Law.
On 12.8.04 Anil was placed under arrest for having committed
offences punishable under Sections 132 and 135 of the Customs
Act, 1962 (for short, \0231962 Act\024) for failure to declare dutiable
goods in Customs Declaration Form and for having walked
through the Green Channel with intent to evade the payment of
duty and for making willful mis-statements and suppression of
material facts. On 16.8.04 Anil voluntarily deposited customs
duty amounting to Rs.47,72,521. On 19.8.04 he was granted
bail after he had deposited the duty.
4. It is important to note that in his first bail application Anil
stated that when he was approaching the Red Channel the DRI
Officers along with the Customs Officers forcibly took him to the
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Green Channel.
5. On 24.9.04 show cause notice was issued demanding duty
amounting to Rs.47,72,521 and for confiscation of seized earrings
and imposition of penalty. On 30.9.04 proceedings for
prosecution of Anil was launched in the Court of Addl. Chief
Metropolitan Magistrate, Patiala House, New Delhi.
6. On 18.1.06 Anil applied for compounding the offences in
which application he stated that the two pairs of diamond
earrings were gifted to him by his friend in United Kingdom on
the occasion of marriage; that the invoice stood issued in his
name which indicated the value of two pairs of diamond earrings
solely for claiming VAT refund at London Airport; and that, Anil
was not required to pay any money towards the value of the
invoice. In his application Anil stated that his flight landed at
I.G.I. Airport, New Delhi, and since he was tired he entered the
Green Channel area due to oversight, though he wanted to make
a declaration about the two pairs of diamond earrings and seek
clarification regarding the duty liability. This application was
made on 18.1.06 on which date Anil simultaneously also moved
an application for settlement of his case under Section 127B of
the 1962 Act.
7. On receipt of his application for compounding the offences
under Sections 132 and 135(1)(a) of the 1962 Act, the
Compounding Authority called for a report from the Reporting
Authority, namely, from DRI and Customs Department under
Rule 4(1) of the Customs (Compounding of Offences) Rules, 2005
(hereinafter referred to as \0232005 Rules\024). On 9.3.06 DRI
submitted its report under Rule 4(2) whereas on 21.2.06 the
Customs Commissioner (Ing.) also Reporting Authority submitted
its report under the said Rule. Vide DRI report, it was pointed
out to the Compounding Authority that the invoice was in the
name of Anil and not of Kansagara; that refund was to be claimed
by Anil and not by Kansagara; that the earrings were recovered
after Anil\022s interception and subsequent search and, therefore,
Anil\022s claim of voluntarily inviting the Customs\022 Officers was
denied. Similarly, the fact that Anil was carrying two pairs of
diamond earrings on his person; that there were empty boxes in
his baggage also clearly established his intent to smuggle the
diamond earrings into India.
8. By impugned order dated 25.5.06 the Compounding
Authority, however, compounded the offences punishable under
Section 132 and 135(1)(a) and imposed the fine of Rs.15 lakhs.
The Compounding Authority in its final order found that the
offence for which compounding has been applied was a
substantive offence as defined in the guidelines enumerated in
Circular dated 30.12.05 issued by the Central Government; that
the case was eligible for being compounded; that it was the first
offence and that the eligibility of Anil to make compounding
application stood verified. Accordingly the Compounding
Authority came to the conclusion that the application fell within
the scope and eligibility of compounding offences under Rule 4 of
the 2005 Rules.
9. Aggrieved by the decision of the Compounding Authority
dated 25.5.06 Union of India challenged the said order before the
Delhi High Court in Writ Petition (c) No.12912 of 2006 which has
been dismissed by the impugned judgment, hence this civil
appeal.
10. To recap, Anil has been accused of attempting to smuggling
into India two pairs of diamond earrings, collectively valued at
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Rs.1,16,90,300 and to fraudulently evade customs duty
chargeable thereon which rendered the said goods liable to
confiscation under Section 111 of the 1962 Act. According to
Department, Anil had knowingly made a false declaration under
Section 77 of the 1962 Act before the Customs Authorities at IGI
Airport, New Delhi, with regard to dutiable goods carried by him
in his baggage, with the sole intent of evading payment of
customs duty and has, therefore, committed offences punishable
under Sections 132 and 135(1)(a) of the said Act.
11. In order to understand the concept of Compounding it is
necessary to quote the relevant portions of Section 137 of the
Customs Act, 1962 and Rules 3, 6 and 7 of the Customs
(Compounding of Offences) Rules, 2005 which read as under:
\023Customs Act, 1962
SECTION 137. Cognizance of offences. \026
(1) No court shall take cognizance of any offence
under section 132, section 133, section 134 or
section 135 or section 135A, except with the
previous sanction of the Commissioner of
Customs.
(2) No court shall take cognizance of any offence
under section 136, -
(a) where the offence is alleged to have been
committed by an officer of customs not
lower in rank than Assistant Commissioner
of Customs, except with the previous
sanction of the Central Government;
(b) where the offence is alleged to have been
committed by an officer of customs lower in
rank than Assistant Commissioner of
Customs except with the previous sanction
of the Commissioner of Customs.
(3) Any offence under this Chapter may, either
before or after the institution of prosecution, be
compounded by the Chief Commissioner of
Customs on payment, by the person accused of
the offence to the Central Government, of such
compounding amount as may be specified by
rules.\024
\023Customs (Compounding of Offences) Rules, 2005
RULE 3. Form and manner of application. \026
(1) An applicant may, either before or after
institution of prosecution, make an application
under sub-section (3) of section 137 in the form
appended [See: Customs series Form No.124 in
Part 5] to these rules, to the compounding
authority for compounding of the offence.
Explanation.- Where an offence has been committed
at more than one place falling under the jurisdiction
of more than one compounding authority, then the
Chief Commissioner of Customs having jurisdiction
over such place where the value of goods seized, or
the amount of duty evaded or attempted to be
evaded or amount of export incentives wrongly
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claimed or attempted to be claimed wrongly is more
than others shall be the competent authority.
RULE 6. Power of Compounding authority to
grant immunity from prosecution. - The
compounding authority, if he is satisfied that any
person who has made the application for
compounding of offence under these rules has co-
operated in the proceedings before him and has
made full and true disclosure of facts relating to the
case, grant to such person, subject to such
conditions as he may think fit to impose, immunity
from prosecution for any offence under the Customs
Act, 1962 with respect to the case covered by the
compounding of offence.
RULE 7. Withdrawal of immunity from
Prosecution in certain conditions. \026
(1) An immunity granted to a person under rule 6
shall stand withdrawn if such person fails to pay
any sum specified in the order of compounding
passed by the Compounding authority, under
sub-rule (3) of rule 4 within the time specified in
such order or fails to comply with any other
condition subject to which the immunity was
granted and thereupon the provisions of the
Customs Act, 1962 shall apply as if no such
immunity had been granted.
(2) An immunity granted to a person under sub-
rule (1) above may, at any time, be withdrawn by
the Compounding authority, if he is satisfied
that such person had, in the course of the
compounding proceedings, concealed any
particulars, material or had given false evidence,
and thereupon such person may be tried for the
offence with respect to which immunity was
granted or for any other offence that appears to
have been committed by him in connection with
the compounding proceedings and thereupon
the provisions of the Customs Act, 1962 shall
apply as if no such immunity had been granted.\024
12. To begin with, it may be noted that Section 137(3) of the
1962 Act talks about compounding of any offence falling under
Chapter XVI which covers Sections 132 and 135. Therefore,
\023compounding\024 falls under Section 137 which deals with
cognizance of offences. Under Section 137 of the 1962 Act, no
Court shall take cognizance of any offence under Sections 132,
133, 134 and 135 of the 1962 Act except with the prior sanction
of the Commissioner of Customs. Therefore, the machinery
created under the Act is not for the purpose of investigating the
crimes, but for enforcement of the provisions of the Act and the
prevention of evasion of duty under the Customs Act.
13. Compounding of offences is based on the principle of
Disclosure. For purposes of Section 137(3), that disclosure has
to be in relation to the facts of the case (See Rule 6 of the 2005
Rules). Anil has been accused of the offence to the Central
Government. There is a difference between \023Disclosure in
Judicial Review Proceedings\024 and \023Disclosure in cases relating to
Compounding of Offences\024. In the case of disclosure in judicial
review proceedings, Courts are not concerned with factual
findings, however, in cases of compounding of offences it would
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be the duty of the Compounding Authority to find out existence of
material, outside the evidence, which suggests that disclosure is
inaccurate, misleading or incomplete, particularly, when there
are contradictions in the stand taken by the applicant earlier
when statements are recorded under Section 108 of the 1962 Act
and the averments made in the Application for Compounding of
Offences. In compounding cases, we have Merit Review vis-‘-vis
Judicial Review. In the present case, Anil has stated in his
Application under Section 137(3) that he had no intent to
smuggle as he had entered into Green Channel through oversight
whereas earlier in his first bail Application Anil has stated that he
was forcibly taken by DRI Officers to walk through Green
Channel. The basic rule of \023disclosure\024, underlying Section
137(3), is that if there are demonstrable contradictions or
inconsistencies or incompleteness in the case of the applicant
then application for compounding cannot be entertained.
Applications for compounding ought to be disallowed if there are
such contradictions, inconsistencies or incompleteness. The
reason is obvious. If the applicant is trying to hoodwink the
Authority such applications would not be maintainable. That
aspect is required to be kept in mind by the Compounding
Authority. The test is as follows \026 Is the applicant candid in the
matter of placing of materials and facts before the Compounding
Authority without in any way trying to hoodwink the Authority to
escape his criminal liability? Equally, the Compounding
Authority is bound to discharge the statutory duty of making
proper enquiry by examining with care and caution the materials
that have been made available. The said Compounding Authority
must be satisfied that the applicant has done all he could or need
to do in the matter. The applicant has to be One-Time Evader.
He has to make clean breast of his affairs. He has to give
exhaustive account of the circumstances in which he came to
Delhi, how he came in possession of the diamond earrings,
whether he had knowledge of the said earrings to be smuggled
into India, he has to disclose the name, address and telephone
number of the person who gave him the diamond earrings,
whether the applicant knew that the earrings were meant to be
smuggled into India etc. The applicant has also to explain the
circumstances in which he received the goods without knowing
that they were being illegally imported or smuggled. In the
present case, none of the above tests stands fulfilled. Therefore,
the Application for compounding the offences under Sections 132
and 135(1)(a), was not maintainable. The contradictions in the
two versions given by Anil per se made the Application for
compounding liable to be rejected. In our view, neither Anil has
fulfilled his obligations nor has the Compounding Authority
discharged its statutory duty of making proper enquiries.
14. Before concluding, it may be mentioned that the
compounding mechanism in Section 137(3) is to be allowed only
in cases of doubtful benefit to the Revenue and to prevent
needlessly proliferating litigation and holding up of collections.
Compounding cannot be allowed if there are apparent
contradictions, inconsistencies or incompleteness in the case of
the applicant before the Compounding Authority. It is the duty of
the Compounding Authority to ascertain such contradictions
before compounding is ordered. In the present case, different
versions given by Anil \026 in his statement under Section 108, in
his first bail Application and in his Application for compounding
\026 itself disqualifies Anil from claiming the benefit of compounding
under Section 137(3) of the 1962 Act.
15. None of the above aspects have been examined by the
Compounding Authority in its order dated 25.5.06 as well as by
the High Court in the impugned judgment dated 17.10.06 and
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they are hereby set aside. Consequently, the Department\022s civil
appeal stands accordingly allowed with no order as to costs.