Supreme Court Quashes Customs Duty Case Against Subsequent Purchaser of Imported Car

In a landmark decision, the Supreme Court of India has set an important precedent in the interpretation of the Customs Act, 1962 by quashing the case against Nalin Choksey, a subsequent purchaser of a Porsche Carrera car. The Court ruled that a subsequent purchaser cannot be held liable for customs duties under Section 28 of the Customs Act, clarifying that the possessor of goods can only be held liable when the owner is not known. This case revolved around allegations of misdeclaration, tampering with the chassis number, and under-invoicing to evade customs duty.

The Apex Court’s ruling overturned a previous decision by the Kerala High Court, which had sided with the Customs Department, and upheld the customs duty demand against Choksey, despite his being a legal purchaser who was not involved in the importation process.

Case Background: The case pertains to a Porsche Carrera car that was originally imported by Jalaludheen Kunhi Thayil in 2002. After the importation, the car was sold to Shailesh Kumar in 2003. Subsequently, Nalin Choksey, the appellant, purchased the car in October 2004. In 2006, a Show-Cause Notice was issued to Choksey, along with other parties, alleging that the car was undervalued and had been tampered with to avoid customs duties.

The Customs Department issued a demand for ₹17,92,847 as the differential duty, citing that the vehicle had been misdeclared in terms of its model, manufacture year, and chassis number. Despite not being involved in the importation process, Choksey was served with a notice to pay the outstanding duty and fines, as he was in possession of the car.

Key Arguments Presented:

1. Appellant’s Argument (Choksey’s Legal Stand):
2. Respondent’s Argument (Customs Department’s Stand):

Supreme Court’s Analysis: The Supreme Court analyzed both the Customs Act and the Motor Vehicles Act in detail before rendering its judgment.

1. Definition of “Importer” Under Section 2(26) of the Customs Act: The Court referred to the definition of “importer” under Section 2(26) of the Customs Act, which includes the actual importer, beneficial owner, or any person holding themselves out to be the importer, but only during the period between importation and clearance for home consumption. The Court noted that Choksey, as a subsequent purchaser, did not fall within this definition, as he had not been involved in the import process and had not benefitted from the importation.
2. Ownership Under the Motor Vehicles Act: The Apex Court also referred to the Motor Vehicles Act, 1988, noting that the registered owner of a vehicle is deemed the legal owner of the vehicle. Since the car’s registration certificate was still in the name of the original importer, Jalaludheen Kunhi Thayil, he remained the legal owner of the vehicle. The Court concluded that Choksey, though in possession of the car, was not the owner under the law and thus could not be liable for the customs duties.
3. Section 125(1) and Liability for Possession: The Court further examined Section 125(1) of the Customs Act, which provides that the possessor of goods can be held liable for customs duties only when the owner of the goods is not known. In this case, as the original importer’s name appeared on the registration certificate, the owner was known, and therefore, Choksey could not be made liable for the customs duty.

Supreme Court’s Judgment: The Supreme Court ruled in favor of the appellant, Nalin Choksey, and quashed the decision of the Kerala High Court. The Court held that Choksey, being a subsequent purchaser, could not be treated as an importer under the Customs Act and, therefore, could not be held liable for the payment of customs duty.

• Unlawful Proceedings: The Court found that the Show-Cause Notice, the seizure, and the confiscation of the vehicle were not in accordance with the law, as they were initiated against a person who was not involved in the customs violations.
• No Liability for Subsequent Purchasers: The Court further clarified that the liability for customs duties and penalties lies solely with the importer or, in rare cases, the owner at the time of importation. Subsequent purchasers who are not involved in the importation process cannot be held accountable for misdeclarations or short-paid duties.

Summary : This judgment by the Supreme Court clarifies the scope of liability under the Customs Act, reinforcing that subsequent purchasers of imported goods, who are not involved in the import process, cannot be held liable for customs duties or penalties. The ruling protects innocent buyers from being penalized for customs violations committed by the original importers, ensuring that customs duties are applied only to those directly responsible for the importation of goods.