Source: Supreme Court  

Why in News? 

The Supreme Court ruled that a subsequent purchaser of an imported car cannot be deemed an "importer" under the Customs Act, 1962 and is not liable to pay customs duty. 

• A bench of Justices BV Nagarathna and N Kotiswar Singh set aside a High Court decision demanding ₹17.92 lakh in customs duty from a Porsche car's purchaser, clarifying that the liability rests with the original importer, not subsequent buyers. 

What was the Background of Nalin Choksey v. The Commissioner of Customs? 

• In June 2002, Sri Jalaludheen Kunhi Thayil imported a Porsche Carrera car into India. 
• The car was subsequently sold to Sri Shailesh Kumar in 2003 and then purchased by Nalin Choksey in October 2004. 
• In June 2007, the Customs Department issued a Show-Cause Notice to multiple parties, including Choksey, alleging serious import irregularities. 
• The allegations included misdeclaration of the car's model, year of manufacture, and chassis number, supposedly done to under-invoice and under-value the vehicle. 
• The Customs Department demanded a differential customs duty of ₹17,92,847 and proposed to confiscate the car. 
• The notice was issued under Sections 28(1) and 124 of the Customs Act, 1962, targeting the original importer and subsequent purchasers jointly and severally. 
• Initially, the Customs, Excise and Service Tax Appellate Tribunal allowed Choksey's appeal, finding him a bonafide purchaser with no role in the original import irregularities. 
• The Customs Department then appealed to the High Court of Kerala, which overturned the Tribunal's decision, leading Choksey to approach the Supreme Court. 

What were the Court’s Observations? 

• The Supreme Court examined the definition of 'importer' under Section 2(26) of the Customs Act, concluding that the appellant (Nalin Choksey) did not qualify as an importer since he was neither involved in the car's importation nor was the car imported for his benefit. 
• The Court rigorously analyzed the definition of 'owner' under Section 2(30) of the Motor Vehicles Act, 1988, determining that Choksey could not be considered the legal owner as the vehicle's registration certificate remained in the original importer's name. 
• The Court distinguished between possession and ownership, rejecting the Department's argument that mere possession of the vehicle could render Choksey liable for customs duty, particularly when the vehicle's actual owner (the original importer) was known. 
• The bench critically observed that the proceeding's initiation against Choksey—including the Show-Cause Notice, seizure, and confiscation—were fundamentally unlawful and not in accordance with the provisions of the Customs Act. 
• While quashing the proceedings against Choksey, the Court explicitly clarified that this decision would not impede the Department from pursuing legal action against the original importer and registered owner of the vehicle. 
• The Court ultimately held that a subsequent purchaser cannot be arbitrarily made liable for customs duty evasion committed during the original import of a vehicle.

What is the Custom Act, 1962? 

• Legal Framework: The Customs Act of 1962 is a comprehensive legislation that provides the legal basis for levy of customs duties, regulation of imports and exports, and management of international trade in India. 
• Constitutional Basis: The Act derives its power from Entry No. 83 of List 1 to Schedule VII of the Indian Constitution, which empowers the Union Government to legislate and collect duties on imports and exports. 
• Key Provisions of the Act:  
  • Section 12 specifically provides for the levy of duties on goods imported into or exported from India 
  • Defines the procedures for determining the value of imported and exported goods 
  • Establishes regulations for cargo, baggage, and international passenger clearance 
• Duty Determination: The Act works in conjunction with the Customs Tariff Act, 1975 to specify:  
  • Items subject to import and export duties. 
  • Rates of duties (specific, ad-valorem, or specific cum ad-valorem). 
  • Valuation methods for determining duty rates. 
  • Enforcement Functions:  
    • Governs imports and exports of cargo, baggage, and postal articles. 
    • Provides mechanisms for preventing smuggling. 
    • Enables enforcement of prohibitions and restrictions on international trade. 
• Modernization Aspect: The Act has been continuously updated to:  
  • Adopt international best practices. 
  • Implement electronic data interchange (EDI). 
  • Align with World Customs Organization standards. 
  • Facilitate ease of doing business. 
• Scope of Application: Covers a wide range of stakeholders including:  
  • International passengers 
  • Importers and exporters 
  • Traders 
  • Manufacturers 
  • Carriers 
  • Port and airport authorities 
  • Other government and semi-government agencies 
• Valuation Principles: Based on the WTO Valuation Agreement (formerly GATT), which provides standardized methods for determining the customs value of imported and exported goods. 

Valuation Principles Under Customs Act: 

Based on the WTO Valuation Agreement to ensure standardized and transparent duty assessment. 

• Section 28(1): Recovery of duties or penalties. 
• Section 124: Legal framework for confiscation and penalties