Mohammed Akmam Uddin Ahmed & Ors. v. Commissioner Appeals Customs and Central Excise & Ors.

1. The present Petition has been filed by the Petitioners, inter-alia, challenging the constitutional vires of Section 129E of the Customs Act, 1962 [hereinafter referred to as “the Act”] and seeking a direction to Respondents to admit the Appeal filed by the Petitioners without pre-deposit of the mandatory duty as stipulated in Section 129E of the Act. 1.[1] The Petitioners have submitted that they belong to poor families and live in Islam Nagar, Hojai, Assam, and are not well-educated youth. In support of their plea, the Petitioners No. 1 and 3 have filed an income certificate dated 13.12.2021 issued by the Office of the Circle Officer, Hojai, Assam, showing an annual income of Rs. 1,00,000/- (Rupees One Lakh). The Petitioners further stated that they are earning their livelihood through agriculture and by selling small quantities of Agarwood. The Petitioners have submitted in the Petition that the goods seized by the Customs Authorities were purchased by them, and the bills were attached to the Reply to the Show Cause Notice. The Petitioners have also stated that the goods seized were wrongly assessed at very high market value, and the penalty has been levied based on an incorrect assessment of the goods. The Petitioners have further submitted that their right of Appeal under Section 129E of the Act cannot be exercised as they are not financially sound and hence, unable to pay the mandatory pre-deposit as required to challenge this levy. Background:

2. The undisputed facts for the purpose of this Petition are as follows: 2.[1] The Petitioners were travelling from Assam to Delhi, and they intended to depart for Bangkok on 20.09.2019. They were carrying three handbags and five trolley bags. The screening of the bags carried by the Petitioners at IGI Airport revealed that the Petitioners were carrying Agarwood Chips and Agarwood Oil. Agarwood Chips weighing 120 Kgs, along with 4.[5] Kgs of Agarwood Oil (approximately), recovered from the Petitioners, which were collectively valued at Rs. 6,36,00,000/- by the Customs Authorities. 2.[2] Since the Petitioners failed to produce any valid document for the export of the said Agarwood Chips, the Petitioners‟ act of carrying Agarwood Chips and Agarwood Oil was held to be in contravention of the provisions of the Act read with the provisions of the Foreign Trade (Development & Regulation) Act, 1992, and the same were confiscated under Section 113 of the Act. Accordingly, a Show Cause Notice dated 16.03.2020 [hereinafter referred to as “the SCN”] issued under Section 124 of the Act, was served upon the Petitioners by the Office of the Commissioner of Customs, for the said confiscated Agarwood Chips and Agarwood Oil. 2.[3] The Petitioners filed a common Reply to the SCN on 16.03.2020. Although the copy of the Reply to the SCN was not filed with the Petition, the Order-in-Original dated 13.07.2021 [hereinafter referred to as “the OIO”] reproduces the Reply. As per the OIO, the Petitioners were represented before the Respondent No. 1 and 2 through Counsel and were accorded a personal hearing on 01.03.2021 as well. 2.[4] After hearing the contentions of all the parties, the Respondent No. 2 by its OIO held that the Petitioners do not possess valid documents for the export of the Agarwood Chips and Agarwood Oil and have thus contravened the provisions of the Act. The OIO held that the goods are liable for absolute confiscation and imposed a penalty on each of the Petitioners as under: ―(i) Absolute confiscation of the seized goods collectively amounting to Rs. 6,36,00,000/-.

(ii) Penalty of Rs. 15,00,000/- on Petitioner No. 1 under Section

(iii) Penalty of Rs. 75,00,000/- on Petitioner No. 2 under Section

(iv) Penalty of Rs. 25,00,000/- on Petitioner No. 3 under Section

(v) Absolute confiscation of the bags used to conceal the seized goods.‖

2.[5] Aggrieved by the OIO, the Petitioners filed three Appeals on 27.10.2021 before Respondent No. 1 along with an application for exemption/stay qua deposit of the mandatory condition of the predeposit of 7.5% of the penalty for filing an Appeal. One such Appeal (of Petitioner No. 2) has been placed before this Court. 2.[6] The Superintendent (Appeals) by its letter dated 08.11.2021, returned all three Appeals to the Petitioners, as the mandatory payment of 7.5% of the penalty imposed under Section 129E of the Act was not made. 2.[7] This has led to the filing of the present Petition. Submissions of the Petitioners:

3. The Petitioners raised a challenge to the constitutional validity of Section 129E of the Act. As has already been noted in Order dated 27.04.2022 passed by this Court, the Supreme Court, by its Judgment dated 28.02.2022, in the matter titled as Chandra Sekhar Jha V. Union of India & Anr.[1] has sustained the wholesomeness of this provision. As a matter of fact except for the prayer, no submissions were advanced on the purported unconstitutionality of Section 129E of the Act. Hence, we do not need to advert to this any further.

4. The Petitioners have stated that the export of cultivated variety of Agarwood Chips and Agarwood Oil is free and not prohibited by

┌───────────────────────────────────────────────────────────────────────────────────────────────────────────────┐
│                                    Sl. No. 60(b) of Schedule – 2 of Export Policy, Table – B, Chapter         │
├───────────────────────────────────────────────────────────────────────────────────────────────────────────────┤
│                                    12.     The     Petitioners   have    also    relied   on   Notification   │
│                                    No. 45/2015-2020 dated 29.11.2021 on Amendment in Export Policy            │
│                                    of Agarwood Oil and Agarwood Chips and Powder, (which describes            │
│                                    the policy conditions for the export of Agarwood Chips and Powder          │
│                                    and Agarwood Oil), stating that it is only by the amendment of said        │
│                                    policy that the seized products have become prohibited. However, at        │
│                                    the time of the seizure by the Customs Authorities on 20.09.2019, the      │
│                                    said policy was not in force.                                              │
│                               2022 SCC OnLine SC 269                                                          │
│                           W.P. (C) 1242/2022                                                   Page 5 of 30   │
└───────────────────────────────────────────────────────────────────────────────────────────────────────────────┘

13. To better understand the contention of the parties with respect to the goods, i.e., Agarwood Chips and Agarwood Oil and the valuation thereof in the present case, it is also necessary to advert to the „The Assam Agarwood Promotion Policy 2020‟ of the Assam Government [hereinafter referred to as “the Agarwood Policy”]. Paragraph 1 explains the usage of Agarwood for medicinal, aromatic and even religious purposes. Paragraph 4 of the Agarwood Policy, inter-alia, sets forth that the Agarwood species called Aquilaria Malaccensis is a critically endangered tree species in India and is included in Appendix II of CITES, i.e., potentially threatened species. 13.[1] The Petitioners have contended that the export of Agarwood Chips and Agarwood Oil is free and not prohibited, while the Respondents contend that the export of Agarwood is prohibited under the DGFT notification dated 13.04.1998 [hereinafter referred to as “1998 Notification”]. 13.[2] A review of the 1998 notification would show that the export of Aquilaria Malaccensis species of Agarwood is in fact not prohibited but “restricted”. The export is subject to fulfilment of certain conditions which include production of a Certificate of Cultivation from the Regional Deputy Director (Wildlife), or Chief Conservator of Forests or Divisional Forest Officers of the State concerned; the requisite permit for export under CITES and/or other requisite formalities. 13.[3] While both the Petitioners as well as the Respondent No.2 have agreed that the species Aquilaria Malaccensis is an endangered species, they differ on whether the goods seized belong to the high grade Aquilaria Malaccensis species of Agarwood or a lower grade different species. 13.[4] The Petitioners have stated that they were carrying low grade Agarwood which is not restricted for export. 13.[5] The Respondent No.2, in the OIO places reliance on the report of the Wildlife Inspector dated 20.09.2019 [see Paragraph 5.[1] supra] to contend that the goods seized are of the Aquilaria Malaccensis species. However, the OIO misses a crucial aspect of the report of the Wildlife Inspector, wherein it is stated that ―different grades of Agarwood were seized‖. Paragraph 20 of the OIO in fact concludes that the seized goods are prohibited/restricted goods without going into the ‗species‘ or ‗grades‘ of the Agarwood Chips seized. This is important as without going into the ‗grade‘ and ‗species‘ of Agarwood Chips and Oil, it is not possible to ascertain its valuation. Discussion on Valuation and Prices:

14. It is noticed that the report of the Wildlife Inspector referred to in Paragraph 5.[1] above is a “preliminary examination report”. This report was made after the examination of the baggage of the Petitioners at IGI Airport, Delhi at the time of seizure of the goods on 20.09.2019. The report does not set forth any price/value or grade of the goods seized but identifies the seized goods as “Agarwood assorted size and shape/different grades of aquilaria malaccensis‖. The OIO does not refer to any “Final Report” or further examination of the seized goods after 20.09.2019. 14.[1] The penalty imposed on the Petitioners has been based on the price and valuation by the Respondents No.1 and 2 of the goods seized. The Petitioners have stated that they had purchased the goods seized from the local market of Hojai, Assam. The Petitioners have submitted that the international market value of Agarwood Chips and Agarwood Oil as per the Agarwood Policy is high, however the goods seized were of the lowest grade purchased from the local market. It is submitted by the Petitioners that the market value of Agarwood Chips and Agarwood Oil ranges from Rs. 140/- to Rs. 1,200/- per Kg and that the invoices for the seized material showing such purchase have been placed before the adjudicating authorities along with their Reply to the SCN. 14.[2] The Petitioners have also filed a few invoices in support of their contentions of price variation with the Appeal. One is dated 13.09.2019 in the name of an entity called ―Rare Enterprise, Mehrauli, Delhi‖ showing a sale of Agarwood Chips of Aquillaria Agalocha, i.e., a low grade species of Agarwood at prices ranging between Rs. 950/- to Rs.1600/- per Kg. The second invoice is in the name of Petitioner No. 2 and dated 15.09.2019 showing a sale of 5 Kg of Agarwood Oil at Rs. 6,000/- per kg. Two other invoices are dated March, 2018 showing a price of Agarwood Oil at Rs. 1,200/per Kg and Rs. 475/- per Kg for different varieties of Agarwood Chips.

15. The Respondents on the other hand, have maintained that the same valuation for entirety of the goods seized. Paragraph 1.[8] of the SCN shows that the Agarwood Chips have been “provisionally” valued at Rs. 5,00,000/- per Kg, while the market value of Agarwood Oil has been assessed at the rate of Rs. 8,00,000/- per Kg. The relevant extract is below: ―Therefore, the said wooden chips of Agar wood total weighing 120 kgs having, Market value of Rs. 6 crores approx (Provisional international Market value taken at the rate of Rs. 5 lakh per Kg) and Agarwood oil weighing 4.[5] Kgs having, market value of Rs 36 lakh (Provisional Market value taken at the rate of Rs. 8 lakh per Kg) approx are seized…‖ 15.[1] This ―provisional‖ valuation appears to be taken verbatim from the Panchnama dated 20.09.2019 [hereinafter referred to as “the Panchnama”]. The relevant extract of the Panchnama is below: ―Therefore, the said wooden chips of Agar wood total weighing 120 kgs having, Market value of Rs. 6 crores approx (Provisional international Market value taken at the rate of Rs.[5] lakh per Kg) and Agar wood oil weighing 4.[5] Kgs having, market value of Rs 36 lakh (Provisional Market value taken at the rate of Rs. 8 lakh per Kg) approx were seized by the customs officer under the provisions of section 110 of the Customs Act, 1962.‖ 15.[2] Three separate Orders passed under Section 110(1) of the Act [Seizure Memos], each dated 20.09.2019 also identically value the Agarwood Chips and Agarwood Oil in terms of the Panchnama at Rs.[5] Lakhs per Kg for Agarwood Chips and Rs. 8 Lakhs per Kg for Agarwood Oil. 15.[3] As stated above, the SCN adopts the same ―provisional international market value‖ as stated in the Panchnama/Seizure Memos. No clue is provided in the SCN as to the basis of valuation assigned to Agarwood Chips and Agarwood Oil.

16. Although the OIO references the report of the Wildlife Inspector, which sets out that chips of different grades were recovered, there is no reference to the prices assigned to each different grade of Agarwood in the OIO. The same value has been assigned to the entire 120 Kgs seized. The SCN sets forth the valuation of the seized goods and the penalty imposed on each of the Petitioners, based on this ―provisional international market value‖. The OIO only reproduces the valuation as set forth in the SCN, the Panchnama and Seizure Memos and reiterates that the value of the Agarwood Chips is at the rate of Rs. 5,00,000/- per Kg, while the Agarwood Oil is valued at the rate of Rs. 8,00,000/- per Kg. 16.[1] The OIO further clarifies that the quantum of penalty has been imposed keeping in consideration “the mens rea”, i.e., intent of smuggling and the specific roles of all the three Petitioners in the whole act of attempt to smuggling. 16.[2] However, as can be seen from the table below, the penalty imposed on each Petitioner appears to be a different percentage value of the goods recovered from each of them [see last column titled ‗Penalty Imposed‘]. There appears to be no logic or rationale for same.