Gem Nuts and Produce Exports Co. Pvt. Vs. Commissioner of Customs - Court Judgment

Excerpt:
1. gem & nuts and produce exports co. pvt. ltd., the appellant before us was by virtue of the ownership shares of free press house, owner of office no. 125, nariman point, mumbai, admeasuring 2165 square feet. on 17.7.1997, it entered into an agreement with utopian financial solutions pvt. ltd., mumbai for sale of these premises. the agreement prescribed the sale price to be rs. 4.54 crores. the earnest money of rs. 9.93 lakhs paid by the intending purchaser to the vendor and the agreement provided for adjustment of this amount towards sale price. it also provides that in the event of the purchaser committing the breach of the terms and conditions of the agreement, the vendor (the appellant) shall, without prejudice to its other rights in law be entitled to forfeit an amount of rs. 45,46,500/- out of the earnest money and forthwith refund the balance amount to the purchaser. while the proceedings preliminary to the completion of the sale such as obtaining clearance from the income tax authorities, were under way, the appellant was served a summons on 17.11.1997 under section 108 of the customs act, 1962. the accountant of the appellant attended the officer of the superintendent of customs on that day. it is not clear what transpired before the superintendent of customs.2. the appellant received on 24.11.1997 a letter from the assistant commissioner of customs that the sum paid to the appellant by the purchaser as earnest money was a part of the money fraudulently claimed and received from the customs, and requested to transfer the said amount to assistant commissioner of customs. the assistant commissioner also wrote to the secretary of the free press house ltd. asking it not to permit mortgage, charge, lease, sale or to otherwise deal in any manner with the said office premises without prior approval of the department on the same ground. in response to this letter, free press house ltd. by its letter 3.12.1997 withdrew the no objection that was given for the sale of the property. the appellant by its letter 10.1.1998 called upon the purchaser to terminate the agreement and forfeit the amount of earnest money. in the meantime, the notice that had been issued to naval kishore bangad, the person who had allegedly fraudulently claimed and received drawback without exporting any goods and other person, was adjudicated upon by order dated 11.6.1998, in which the assistant commissioner of customs confirmed the liability to repayment of sum of rs. 16.14 crores along with interest to be paid by tropical exotics, its proprietor sangita bangad and its manager naval kishore bangad. the assistant commissioner's order held that in the event of failure to pay this amount, the provisions of section 144 of the act will be resorted to.3. on 10.12.1998, the assistant commissioner passed an order, addressed to tropical exotics, naval kishore bangad, sangita bangad, vinita lakhotia and utopian financial solutions pvt. ltd. by this order, he "prohibited and restrained, until the further order of the undersigned, from transferring or charging the under mentioned property in any way and that all persons be, and that they are hereby prohibited from taking any benefit under such transfer or charge." among the properties specified by him is free press house, the owner of which was the appellant. the order also says that "attachment of property in all cases is to the extent of advance payment made by the purchasers." efforts by the appellant to seek intervention under article 226 of the constitution by the bombay high court did not succeed and as also the appeal against that order to the supreme court, except a consent order was passed by the court. this order provided for deposit by the appellant to the commissioner of customs (appeals) of the disputed amount upon which the attachment levied on the premises shall be raised. the order recorded that the appellant stated that out of the amount so deposited, it had no claim on rs. 4546500, provided for investment by the department etc. it gave liberty to the appellant to challenge the attachment in accordance with law. the appellant accordingly filed an appeal to the commissioner (appeals) against the attachment order and that appeal having been dismissed, is before us.4. the case of the department that has been set out by the commissioner (appeals) in his order is as follows. naval kishore bangad and his wife sangeeta bangad through tropical exotics obtained from the department drawback to the extent of rs. 16 crores which had been admitted by both to have been exported without any export being made by them. out of this sum, rs. 6.40 crores had been given to nawal kishore bangad and vinita lakhotia. there was no consideration for this transfer. naval kishore is actually controlling the transaction of vinita lakhotia and her company out of such money. vinita lakhotia had agreed to return the money that she received from bangad to the customs. in her letter of 25.2.1998 to the commissioner of customs, she had requested that the property (under consideration by us) may be considered as surrendered by her to the customs department on account of naval kishore bangad's firm by adjusting the demand for the duty drawback erroneously received by her firm. it says "i have no objection with the department restraining the property for transfer of bank accounts of utopian financial solution pvt. ltd. confirmed receipt by it of money to the extent of rs. 1.23 crores from three fraudulent firms including tropical exotica. it is out of this amount that the earnest money as paid to the appellant. the earnest money has therefore been clearly established has been paid out of the sum fraudulently obtained from the department and dud to it to be refunded to it. the fact that, despite coming to know of this on 18.11.1997 of the department's claim and the illegal source of the money, the appellant instead of taking up correctness measures, called upon the purchaser to conclude the transaction on the next day without informing the department and the withdrawal of no objection certificate given by the owner shows "that the appellant being fully aware of the facts and circumstances of the case of the claim that they were not aware about the source of the money and the guilt committed by the person who had paid the money. the departmental representative emphasises these findings.5. section 142 of the act and the rules made thereunder contains the provisions for recovery of the sums due to government under the act.sub-clause (i) of clause (c) of sub-section (ii) provides that if the sum cannot be recovered from the person in the manner specified in the proceedings provisions of the sub-section, the proper officer may on authorisation by the commissioner of customs and in accordance with the rules made in this behalf distrain any movable or immovable property belonging to or under the control of that person, and detain the same until the amount is paid." 6. the customs (attachment of property of defaulters for recovery of government dues) rules, 1995, have been framed to carry out the provisions of this section. rule 3 provides for issue of a certificate by the assistant commissioner of customs specifying the amount due from the defaulters and for it to be sent to the commissioner having jurisdiction over the place in which the defaulter owns any movable or immovable property or resides or carries on his business or has his bank accounts. rule 4 provides for the commissioner on receipt of such certificate to authorise any subordinate officer to cause notice to be served upon the defaulter requiring him to pay the amount specified in the certificate within seven days from the date of the service of the notice and intimate that in default, such subordinate officer is authorised to take steps to realise the amount mentioned in the certificate. rule 5 provides for the proper officer to realise the amount in case it is not paid by attachment and sale of the defaulter's property. rule 6 prescribes that attachment shall not be excessive.rule 7 provides that attachment shall be between sunrise and sunset.rule 8 provides for inventory to be made of the property attached. rule 9 with which we are concerned, is reproduced below: "(i) where a notice has been served on a defaulter under rule 4, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the proper officer. (ii) where an attachment has been made under these rules, any private transfer or delivery of the property attached or of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment." rule 9 relates to property to be attached consists of shares or interest. we are not concerned with the rules from rule 10 onwards.7. the attachment and sale of property has therefore to be regularated by the provisions of these rules.8. the commissioner (appeals) order, as we have noted, proceeds solely on the basis that the earnest money that has been paid to the appellant by vinita lakhotia was paid out of the amount wrongly received as drawback and therefore the amount is liable to attachment. we note the contention of the counsel that it ha snot been by any means established beyond doubt as required by law that this is in fact so. the mere fact that vinita lakhotia received some amount from bangad, he says, cannot lead to the conclusion that the origin of this money can be traced back to the fraudulently obtained drawback. we have not examined the correctness of the claim because in our view proceed to the next claim that even assuming that this was act of money is paid as drawback the attachment is still not covered by the rules.9. the commissioner (appeals) records that the department itself came to know of the fraud only on 16.10.1997. the amount of drawback therefore must have been paid to him prior to this date. the agreement for the sale of the property under consideration was entered into on 17.7.1997 and the earnest money paid on the same day. therefore, on the date on which the earnest money was received, the appellant by any means could not have known that the money was to be tendered or illegally obtained. there is in fact nothing to suggest that the appellant knew that the money was out of the draw back fraudulently received. the conduct of the appellant that the commissioner relies upon only took place in fact after the appellant came to know the fraud. the liability of bangad and his company to repay the money of drawback that has received arose only after the order of 11.6.1998 of the assistant commissioner. the sum that the appellant had received prior to this date therefore would not fall within the scope of the order passed under rule 4 and hence recoverable in terms of the rules.the sum had been paid by the purchaser received by the appellant long before the notice was issued. we therefore do not find it possible to uphold the orders of the commissioner (appeals).

Judgment:
1. Gem & Nuts and Produce Exports Co. Pvt. Ltd., the appellant before us was by virtue of the ownership shares of Free Press House, owner of Office No. 125, Nariman Point, Mumbai, admeasuring 2165 square feet. On 17.7.1997, it entered into an agreement with Utopian Financial Solutions Pvt. Ltd., Mumbai for sale of these premises. The agreement prescribed the sale price to be Rs. 4.54 crores. The earnest money of Rs. 9.93 lakhs paid by the intending purchaser to the vendor and the agreement provided for adjustment of this amount towards sale price. It also provides that in the event of the purchaser committing the breach of the terms and conditions of the agreement, the vendor (the appellant) shall, without prejudice to its other rights in law be entitled to forfeit an amount of Rs. 45,46,500/- out of the earnest money and forthwith refund the balance amount to the purchaser. While the proceedings preliminary to the completion of the sale such as obtaining clearance from the Income Tax authorities, were under way, the appellant was served a summons on 17.11.1997 under Section 108 of the Customs Act, 1962. The accountant of the appellant attended the officer of the Superintendent of Customs on that day. It is not clear what transpired before the Superintendent of Customs.

2. The appellant received on 24.11.1997 a letter from the Assistant Commissioner of Customs that the sum paid to the appellant by the purchaser as earnest money was a part of the money fraudulently claimed and received from the customs, and requested to transfer the said amount to Assistant Commissioner of Customs. The Assistant Commissioner also wrote to the Secretary of the Free Press House Ltd. asking it not to permit mortgage, charge, lease, sale or to otherwise deal in any manner with the said office premises without prior approval of the department on the same ground. In response to this letter, Free Press House Ltd. by its letter 3.12.1997 withdrew the no objection that was given for the sale of the property. The appellant by its letter 10.1.1998 called upon the purchaser to terminate the agreement and forfeit the amount of earnest money. In the meantime, the notice that had been issued to Naval Kishore Bangad, the person who had allegedly fraudulently claimed and received drawback without exporting any goods and other person, was adjudicated upon by order dated 11.6.1998, in which the Assistant Commissioner of Customs confirmed the liability to repayment of sum of Rs. 16.14 crores along with interest to be paid by tropical Exotics, its proprietor Sangita Bangad and its manager Naval Kishore Bangad. The Assistant Commissioner's order held that in the event of failure to pay this amount, the provisions of Section 144 of the Act will be resorted to.

3. On 10.12.1998, the Assistant Commissioner passed an order, addressed to Tropical Exotics, Naval Kishore Bangad, Sangita Bangad, Vinita Lakhotia and Utopian Financial Solutions Pvt. Ltd. By this order, he "prohibited and restrained, until the further order of the undersigned, from transferring or charging the under mentioned property in any way and that all persons be, and that they are hereby prohibited from taking any benefit under such transfer or charge." Among the properties specified by him is Free Press House, the owner of which was the appellant. The order also says that "Attachment of property in all cases is to the extent of advance payment made by the purchasers." Efforts by the appellant to seek intervention under Article 226 of the Constitution by the Bombay High Court did not succeed and as also the appeal against that order to the Supreme Court, except a consent order was passed by the Court. This order provided for deposit by the appellant to the Commissioner of Customs (Appeals) of the disputed amount upon which the attachment levied on the premises shall be raised. The order recorded that the appellant stated that out of the amount so deposited, it had no claim on Rs. 4546500, provided for investment by the department etc. It gave liberty to the appellant to challenge the attachment in accordance with law. The appellant accordingly filed an appeal to the Commissioner (Appeals) against the attachment order and that appeal having been dismissed, is before us.

4. The case of the department that has been set out by the Commissioner (Appeals) in his order is as follows. Naval Kishore Bangad and his wife Sangeeta Bangad through Tropical Exotics obtained from the department drawback to the extent of Rs. 16 crores which had been admitted by both to have been exported without any export being made by them. Out of this sum, Rs. 6.40 crores had been given to Nawal Kishore Bangad and Vinita Lakhotia. There was no consideration for this transfer. Naval Kishore is actually controlling the transaction of Vinita Lakhotia and her company out of such money. Vinita Lakhotia had agreed to return the money that she received from Bangad to the Customs. In her letter of 25.2.1998 to the Commissioner of Customs, she had requested that the property (under consideration by us) may be considered as surrendered by her to the Customs department on account of Naval Kishore Bangad's firm by adjusting the demand for the duty drawback erroneously received by her firm. It says "I have no objection with the department restraining the property for transfer of bank accounts of Utopian Financial Solution Pvt. Ltd. confirmed receipt by it of money to the extent of Rs. 1.23 crores from three fraudulent firms including Tropical Exotica. It is out of this amount that the earnest money as paid to the appellant. The earnest money has therefore been clearly established has been paid out of the sum fraudulently obtained from the department and dud to it to be refunded to it. The fact that, despite coming to know of this on 18.11.1997 of the department's claim and the illegal source of the money, the appellant instead of taking up correctness measures, called upon the purchaser to conclude the transaction on the next day without informing the department and the withdrawal of no objection certificate given by the owner shows "that the appellant being fully aware of the facts and circumstances of the case of the claim that they were not aware about the source of the money and the guilt committed by the person who had paid the money. The departmental representative emphasises these findings.

5. Section 142 of the Act and the rules made thereunder contains the provisions for recovery of the sums due to government under the Act.

Sub-clause (i) of Clause (c) of Sub-section (ii) provides that if the sum cannot be recovered from the person in the manner specified in the proceedings provisions of the sub-section, the proper officer may on authorisation by the Commissioner of Customs and in accordance with the rules made in this behalf distrain any movable or immovable property belonging to or under the control of that person, and detain the same until the amount is paid." 6. The Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, have been framed to carry out the provisions of this section. Rule 3 provides for issue of a certificate by the Assistant Commissioner of Customs specifying the amount due from the defaulters and for it to be sent to the Commissioner having jurisdiction over the place in which the defaulter owns any movable or immovable property or resides or carries on his business or has his bank accounts. Rule 4 provides for the Commissioner on receipt of such certificate to authorise any subordinate officer to cause notice to be served upon the defaulter requiring him to pay the amount specified in the certificate within seven days from the date of the service of the notice and intimate that in default, such subordinate officer is authorised to take steps to realise the amount mentioned in the certificate. Rule 5 provides for the proper officer to realise the amount in case it is not paid by attachment and sale of the defaulter's property. Rule 6 prescribes that attachment shall not be excessive.

Rule 7 provides that attachment shall be between sunrise and sunset.

Rule 8 provides for inventory to be made of the property attached. Rule 9 with which we are concerned, is reproduced below: "(i) Where a notice has been served on a defaulter under Rule 4, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the Proper Officer.

(ii) Where an attachment has been made under these rules, any private transfer or delivery of the property attached or of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment." Rule 9 relates to property to be attached consists of shares or interest. We are not concerned with the rules from Rule 10 onwards.

7. The attachment and sale of property has therefore to be regularated by the provisions of these rules.

8. The Commissioner (Appeals) order, as we have noted, proceeds solely on the basis that the earnest money that has been paid to the appellant by Vinita Lakhotia was paid out of the amount wrongly received as drawback and therefore the amount is liable to attachment. We note the contention of the counsel that it ha snot been by any means established beyond doubt as required by law that this is in fact so. The mere fact that Vinita Lakhotia received some amount from Bangad, he says, cannot lead to the conclusion that the origin of this money can be traced back to the fraudulently obtained drawback. We have not examined the correctness of the claim because in our view proceed to the next claim that even assuming that this was act of money is paid as drawback the attachment is still not covered by the rules.

9. The Commissioner (Appeals) records that the department itself came to know of the fraud only on 16.10.1997. The amount of drawback therefore must have been paid to him prior to this date. The agreement for the sale of the property under consideration was entered into on 17.7.1997 and the earnest money paid on the same day. Therefore, on the date on which the earnest money was received, the appellant by any means could not have known that the money was to be tendered or illegally obtained. There is in fact nothing to suggest that the appellant knew that the money was out of the draw back fraudulently received. The conduct of the appellant that the Commissioner relies upon only took place in fact after the appellant came to know the fraud. The liability of Bangad and his company to repay the money of drawback that has received arose only after the order of 11.6.1998 of the Assistant Commissioner. The sum that the appellant had received prior to this date therefore would not fall within the scope of the order passed under Rule 4 and hence recoverable in terms of the rules.

The sum had been paid by the purchaser received by the appellant long before the notice was issued. We therefore do not find it possible to uphold the orders of the Commissioner (Appeals).