As per Circular issued on 24.11.2005 by CBDT that Accreditation is depend on the fulfillment of the condition clearly mentioned in Para 7 of the Circular

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CIVIL APPELLATE JURISDICTION

WRIT PETITION NO.7107 OF 2011

Shah Pulp & Paper Mills Limited                                                                                    ..Petitioner.

versus

Union of India and others                                                                                          ..Respondents.

.....

Mr. Sujay Kantawala i/b Mr. Brijesh Pathak for the Petitioner.

Mr. Pradeep S. Jetly for the Respondents.

......

CORAM : DR.D.Y.CHANDRACHUD &

                                                A. A. SAYED, JJ.

8 November 2011.

ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :

1. In these proceedings the Petitioner has inter alia challenged the legality and validity of a condition contained in paragraph 7(iii) of a circular issued by the Central Board of Excise and Customs.

2. On 24 November 2005 the Central Board of Excise and Customs issued a circular providing for the introduction of a Risk Management System (RMS) with an Accredited Clients Programme (ACP) as its major component. The object of the programme is to grant assured facilitation to importers who have demonstrated a capacity and willingness to comply with the laws which the Customs Department is required to implement. The object of the system is to enable the department to strike an appropriate balance between the concerns of trade facilitation on the one hand and enforcement on the other. Under the RMS, Bills of Entry filed by importers in the Indian Customs Electronic Data Interface System will be processed for risk and a large number of consignments will be allowed clearance based on a self assessment by the importer without examination. In the case of a Full Container Load (FCL) the container numbers and seals

would be verified while in the case of a Less Container Load (LCL) only the marks and numbers on the packages are to be verified. Importers registered by the department as accredited clients are allowed this facility of assured facilitation. Except for a small percentage of consignments selected on a random basis or cases where specific intelligence is available or where a specific pattern of non compliance is required to be addressed, accredited clients are allowed clearance on the basis of a self assessment as a matter of course on a declaration made and without physical examination of the goods. The benefit is made available to a registered accredited client at all ports in the country where the system is operational. This measure was intended to bring about a reduction in the dwell time of cargo and in transaction costs for importers.

3. Paragraph 7 of the circular as originally introduced, provided for the requirements which importers desirous of availing of a facility of accredited clients were required to comply with. Paragraph 7 as it originally stood was as follows :

“7. The importers desirous of availing the facility as “Accredited Clients” are required to apply for registration under the scheme using the Application form attached at Annex1. Importers meeting the following criteria shall be the eligible under the Accredited Clients Program :

(i) They should have imported goods valued at Rs. Ten  Crores (assessable value) in the previous financial year; or paid more than Rs. One Crore of Customs duty in the previous financial year; or, in the case of importers who are also Central Excise assessees, paid Central Excise Duties over Rs. One Crore from the Personal Ledger Account in the previous financial year;

(ii) They should have filed at least 25 Bills of Entry in the previous financial year in one or more Indian Customs stations.

(iii)They should have no cases of Customs, Central Excise or Service Tax booked against them in the previous three financial years. Cases booked would imply that there should be at least a show cause notice, invoking penal provisions, issued to an importer.

(iv)They should also not have any cases booked under any of the Allied Acts being implemented by Customs.

(v) The quality of the submissions made by the applicants to Customs should be good as measured by the number of amendments made in the bills of entry submitted by them in relation to classification of goods, valuation and claim for exemption benefits. The number of such amendments should not have exceeded 20% of the bills of entry during

the previous financial year.

(vi)They should have no duty demands pending on account of nonfulfillment of Export obligation.

(vii)They should have reliable systems of record keeping and internal controls and their accounting systems should conform to recognized standards of accounting. They are required to provide the necessary certificate from their Chartered Accountants in this regard as per format given in the Application form.”

4. Subsequently on the representation of trade and industry an amendatory circular was issued on 20 August 2011 by the Central Board of Excise and Customs under which paragraph 7(iii) was

substituted as follows : 7(iii) They should have no cases of Customs, “ Central Excise or Service Tax, as detailed below, booked against them in the previous three financial years.

(a) Cases of duty evasion involving misdeclaration / misstatement/ collusion/ willful suppression / fraudulent intent whether or not extended period for issue of SCN has been

invoked.

(b) Cases of misdeclaration and/or clandestine / unauthorized removal of excisable / import / export goods warranting confiscation of said goods.

(c) Cases of misdeclaration / misstatement / collusion / willful suppression / fraudulent intent aimed at availing CENVAT credit, rebate, refund, drawback, benefits under export

promotion / reward schemes.

(d) Cases wherein Customs/ Excise duties and Service Tax has been collected but not deposited with the exchequer.

(e) Cases of nonregistration with the Department with intent to evade payment of duty/tax.”

5. The Petitioner had initially applied for accreditation on 2 March 2010. By a communication dated 14 June 2010 the Assistant Commissioner of Customs issued a communication to the Risk

Management Division, Central Board of Excise and Customs, Mumbai pointing out that the Petitioner was not eligible for accreditation on the ground that the Petitioner did not comply with condition 7(iii). The Petitioner filed a further application dated 8 April 2011. According to the Respondents the application did not furnish specific details on whether the Petitioner and/or its directors had been penalized under proceedings under the Customs Act, or as the case may be, the Central Excise Act / Service Tax enactments. Accordingly a letter was issued to the Petitioners on 25 July 2011, by the Assistant Commissioner of Customs calling upon the Petitioner to submit copies of show cause notices, orders in original, if any and the current status of the cases.

6. The challenge of the Petitioner is to the validity of condition 7(iii). Learned counsel submits that the condition is in violation of the fundamental right of the Petitioner under Article 19(1)(g) of the Constitution to carry on business. The submission is that the mere fact that a case has been booked cannot be a ground to deny accreditation to an importer. The denial of the facility – it is urged would  be a matter of serious hardship in carrying on business and irrespective of the nature of the case, accreditation is liable to be denied.

7. An affidavit in reply has been filed in these proceedings by the Assistant Commissioner of Customs. The affidavit explains the genesis of the circular originally issued by the Central Board of Excise and Customs on 24 November 2005. It has been explained that the Risk Management System seeks to strike an optimal balance between the concerns of facilitation on the one hand and enforcement on the other. The system enables the Customs Department to enhance the effectiveness of the resources at its disposal by focusing them on high risk areas, while delivering a higher level of facilitation to importers who are assessed as compliant and therefore of low risk. The system was introduced as a measure of trade facilitation and for selective screening of only high risk cargo for customs examination. Accredited clients are allowed clearance on the basis of self assessment and on the basis of a declaration without physical examination of goods. With this goal the department sought to create a climate of voluntary compliance. An Accredited client would be entitled to clearance of a large number of consignments purely on the basis of self assessment and it is only in a small number of cases, that consignments would be randomly selected for checks by the Customs officer. It has been explained that the ACP is intended for importers who have a clean track record and history of compliance with the laws and regulations that the Customs Department is required to administer. This includes not only the Customs Act and the rules and regulations made thereunder, but also the exim policy framed by the Director General of Foreign Trade and various allied acts which are administered by the Customs or other government departments. The main risks identified by the Customs Department include (i) Threat to national security, public safety and health; (ii) Threat to revenue arising from misdeclaration of goods, undervaluation, misclassification of goods or erroneous claim of exemptions; (iii) Threat to the economy by evasion of duty; (iv) Smuggling of prohibited articles. Condition 7(iii) as original imposed was modified subsequently on 20 August 2010 upon receipt of representations from trade and industry associations.

8. As regards the Petitioner, the affidavit in reply states that a show cause notice was issued even on the date of the filing of the first application under the Customs Act 1962 in which it was alleged that the Petitioner with the connivance of its directors failed to use paper waste imported under an exemption notification in the manufacture of newsprint. At the time of import, an undertaking was furnished in the form of an end use Bond for availing of a concessional rate of duty that the imported goods would be used for the purpose specified in the notification. The goods imported were, however, illicitly cleared and diverted to another concern resulting in an evasion of customs duty in the amount of Rs.1.65 Crores. In the case of an allied concern of the Petitioner (Shah Paper Mills Limited), the Petitioner in companion Writ Petition 7114 of 2011, it has been stated that a notice to show cause was issued on 30 June 2009 relating to the illicit diversion of imported waste paper for availing of a concessional rate of duty. The show cause notice was adjudicated upon and a penalty has been imposed on the importer besides which a personal penalty has been imposed on each of the two directors who are also directors of the Petitioner in the present case. This fact, it has been stated was not disclosed when an application was filed on 8 April 2011 for enrollment as accredited client. In sum and substance, it has been urged on behalf of the Revenue during the course of the hearing, relying on the affidavit in reply, that the Petitioner has no right to claim the benefit of the ACP scheme. Moreover, it is urged that the continued maintenance of a required compliance level is an essential condition for enjoying the benefits of the scheme which the Petitioner failed to demonstrate even before the grant of ACP status.

9. In considering the challenge to the validity of paragraph 7(iii), it has become necessary for the Court to advert in some detail to the background underlying the promulgation of the scheme. The scheme, when it was issued initially on 24 November 2005 was designed to promote an expeditious facilitation of import cargo. The scheme seeks to balance the need of the trade and industry for facilitation on the one hand with the enforcement concerns of the department. An importer who is registered as an accredited client becomes entitled under the scheme to a clearance of the cargo on the basis of self assessment. The department caries out random checks in certain cases or where specific intelligence is received. No importer had a right as such under the law to claim clearance of cargo merely on the basis of self assessment and by furnishing a declaration. This was a facility which was extended by the Central Board of Excise and Customs to a select class of importers whose track record shows a high level of compliance. An importer who is not accredited can still continue to import his goods following the normal procedure. As

originally introduced condition 7(iii) of the circular stipulated that the importer should have no case of Customs, Central Excise or Service Tax booked against him in the previous three financial years. Cases booked would imply that there should be at least a show cause notice invoking penal provisions. On the representation of the trade and industry that condition has now been modified by the subsequent circular dated 20 August 2010. As modified, the condition now stipulates that there should be no cases involving Customs, Central Excise or Service Tax, as the case may be, booked in the previous three financial years of the nature stipulated therein. All the clauses of the modified condition refer to cases of duty evasion involving misdeclaration, misstatement, willful suppression and fraudulent intent or the like. The condition which has been

imposed in paragraph 7(iii) as modified cannot, in our view, be regarded as arbitrary. The circular seeks to draw a balance between facilitation on the one hand and enforcement on the other. It seeks to grant the benefit of clearance of imported cargo merely on the basis of self assessment. That is on the foundation that in the case of importers who by their track record disclose a high level of compliance, a special facility should be granted. The department cannot be held to be acting arbitrarily in stipulating that importers against whom there are serious cases involving misdeclaration, misstatement, willful suppression or the like should not be granted the

benefit of the facility. There is nothing arbitrary in the department so stipulating. Any system for the management of risk has to balance the concerns of expedition on the one hand with compliance on the other. Condition 7(iii) bears a sufficiently rational nexus with this object and cannot be construed as being arbitrary or violative of the fundamental rights conferred by Articles 14 or 19(1)(g) of the Constitution.

10. The Petitioners have approached this Court instead of responding to the communication that was issued by the Assistant Commissioner of Customs on 26 July 2011. The Assistant Commissioner of Customs was within his jurisdiction in calling for the disclosure of details from the Petitioner pertaining to show cause notices issued, orders in original passed and the current status of the cases. The Petitioners would be at liberty to respond to the communication dated 26 July 2011 by disclosing all relevant information. However, having considered the nature of the challenge to the legality of the condition imposed by the Central Board of Excise and Customs, we do not find any infirmity therein. We accordingly dismiss the Petition. There shall be no order as to costs.

(Dr. D.Y. Chandrachud, J.)

(A. A. Sayed, J.)