Court Rules Extraterritorial Jurisdiction of Customs Act, 1962 Not Retrospective, Exonerates Foreign Firm from Penalties
In a landmark decision, the Bombay High Court has quashed show-cause notices issued to Karl Mayer STOLL Textilmaschinenfabrik GmbH, a German textile machinery exporter, by the Indian Customs Department. The court held that the extraterritorial jurisdiction conferred by the amendment to the Customs Act, 1962, introduced in 2018, cannot be applied retrospectively to penalize foreign exporters for alleged misdeclaration of goods by Indian importers before the amendment came into effect.
The case, adjudicated by a Division Bench comprising Justices G.S. Kulkarni and Aarti Sathe, involved multiple writ petitions challenging the jurisdiction of Indian customs authorities to issue notices against a German entity for transactions occurring outside India. The notices were related to alleged misdeclarations by Indian importers who had imported warp knitting machines from the German company, falsely declaring them to benefit from duty exemptions.
The court observed that prior to the 2018 amendment, the Customs Act did not extend to actions committed outside India. The judges emphasized that the amendment, effective from March 29, 2018, cannot be applied retrospectively to validate proceedings for prior periods. The decision was bolstered by Article 20(1) of the Indian Constitution, which prohibits retrospective penalization.
Furthermore, the court noted that the responsibility for compliance with import regulations lies with the Indian importers, as per Sections 17, 46, and 111(m) of the Customs Act, and not with the foreign exporters. The court found no evidence that the foreign exporters knowingly participated in or abetted the alleged misdeclaration. Consequently, penalties under Sections 112 and 114AA were deemed inapplicable.
In a significant observation, the court criticized the reliance on a single-member CESTAT ruling in a similar case, emphasizing the need for adherence to precedents set by Division Benches.
The Bombay High Court’s ruling reaffirms the prospective application of the 2018 amendment and underscores the limits of jurisdictional reach under the Customs Act, providing clarity on the legal obligations of foreign entities in the context of Indian import regulations.
Bottom Line:
Customs Act, 1962 - Foreign exporter cannot be made liable for the alleged misdeclaration of goods by Indian importers prior to the amendment of the Customs Act in 2018, which conferred extraterritorial jurisdiction.
Statutory provision(s): Customs Act, 1962 Sections 1(2), 112, 114AA; Constitution of India, 1950 Articles 20(1), 245.
