Legal Dispute Over Customs Act: Smuggling, Settlement, and Judicial Interpretation

The case of Yamal Manojbhai v. Union of India & Ors. is a crucial legal battle concerning the application of the Customs Act, 1962, particularly regarding settlement provisions under Chapter XIV A and the fundamental right to personal liberty under Article 21 of the Indian Constitution. The case also highlights the judicial conflict between rulings of different High Courts on whether an accused can seek a settlement when goods fall under the purview of Section 123 of the Customs Act.

The petitioner, an NRI, was arrested on October 5, 2022, at Delhi International Airport while allegedly smuggling high-value goods, including watches, through the green channel, thereby avoiding customs duty. The customs authorities charged him under Sections 132 and 135 of the Customs Act and denied his right to seek settlement under Section 127B.

Background of the Case

The petitioner, unable to leave India due to legal proceedings, sought the intervention of the Supreme Court through a writ petition under Article 32. His plea requested permission to apply for a settlement with the Customs Department, arguing that he was entitled to clear his dues under Section 127B of the Customs Act.

The customs authorities, however, denied him this right, stating that Section 123 explicitly bars settlement for goods mentioned therein, including watches. This led to a significant legal dispute, where the petitioner relied on the Bombay High Court’s ruling in Union of India v. Suresh Raheja, which allowed settlement even in cases involving goods covered under Section 123.

Petitioner’s Arguments

The petitioner’s legal counsel presented the following key arguments:

The Customs Act permits settlement for accused persons who accept their duty liability and are willing to clear their dues.
His case falls under Section 127B, and he should be allowed to settle the matter before adjudication.
The Settlement Commission exists to facilitate dispute resolution, ensuring both revenue recovery and reduced litigation.
The petitioner cited Union of India v. Suresh Raheja, where the Bombay High Court held that seizures within the customs area should not bar settlement.
Since the goods were intercepted before leaving the customs area, the case should not be treated as a completed act of smuggling.

Respondent’s Arguments

The Union of India and customs authorities strongly opposed the petition, stating:

The petitioner was caught red-handed smuggling goods, making him ineligible for settlement.
Section 123 of the Customs Act applies to watches, and goods covered under this section cannot be settled.
The Delhi High Court, in Commissioner of Customs v. Avinash Dawar and Commissioner of Customs v. Jyotsna Chikersal, ruled that Section 127B does not apply to goods covered under Section 123.
Allowing settlement in such cases would defeat the law’s purpose and encourage smuggling.
Section 127B was never intended to provide relief to those attempting to bypass customs duty through illegal means.

Judicial Conflict: Bombay High Court vs. Delhi High Court

The case exposed a major legal conflict between High Courts:

Bombay High Court’s View

In Suresh Raheja, the Bombay High Court ruled that if an accused is caught within the customs area, the bar under Section 123 does not apply.
Since goods were seized before clearing customs, the accused should be allowed to settle the case.
The judgment emphasized that settlement encourages voluntary tax compliance and reduces burden on courts.

Delhi High Court’s View

In Avinash Dawar, the Delhi High Court ruled that goods under Section 123 cannot be settled.
The Court stated that the Customs Act imposes strict penalties for smuggling, and violators should face legal consequences.
Allowing settlement would create loopholes for habitual offenders.

Supreme Court Judgment

The Supreme Court, in a divided opinion, addressed the issues raised.

Majority Opinion: Justice Krishna Murari

Justice Krishna Murari ruled in favor of the petitioner, holding:

“Since the goods were seized within the customs area, Section 123 does not apply. The petitioner is entitled to seek settlement under Section 127B.”

Justice Murari reasoned that:

Settlement should be encouraged to recover revenue swiftly.
Customs authorities must allow those willing to pay duties and penalties to do so.
The Bombay High Court’s interpretation was legally sound and should be followed.

Dissenting Opinion: Justice Sanjay Karol

Justice Sanjay Karol, however, dissented:

“On a plain reading of Sections 127B and 123, it is evident that goods covered under Section 123 are expressly barred from the jurisdiction of the Settlement Commission.”

He held that:

Allowing settlement would go against the legislative intent.
The Delhi High Court’s decisions were correct in barring such cases from settlement.
The Customs Act is meant to deter smuggling, and settlement should not be used as an escape route.

Final Verdict

Due to the conflicting opinions, the matter was referred to the Chief Justice of India for further adjudication.

This case is a landmark in determining the applicability of the Settlement Commission in customs violations and highlights the crucial role of the Supreme Court in ensuring consistency in judicial interpretation.

Petitioner Name: Yamal Manojbhai.
Respondent Name: Union of India & Ors..
Judgment By: Justice Krishna Murari, Justice Sanjay Karol.
Place Of Incident: Delhi International Airport.
Judgment Date: 04-05-2023.

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