Introduction:

In a landmark judgment, the Supreme Court ruled that a subsequent purchaser of an imported vehicle cannot be held liable as an “importer” for paying customs duty under the Customs Act, 1962. The case revolved around a Porsche car imported by one Sri Jalaludheen Kunhi Thayil, who was alleged to have misdeclared its model, tampered with its chassis number, and undervalued it to evade customs duty. The appellant, Nalin Choksey, a subsequent purchaser, challenged the Kerala High Court’s decision, which upheld the customs department’s demand of ₹17,92,847 as differential duty. The Supreme Court, comprising Justice BV Nagarathna and Justice N Kotiswar Singh, held that the appellant could not be termed an importer under the Act and thus bore no liability for customs duty or fines imposed under Section 125 of the Customs Act.

Arguments by the Appellant:

The appellant contended that he was neither the importer of the vehicle nor involved in its importation. He argued that his liability to pay customs duty could not arise as he was merely a subsequent purchaser who had legally acquired the vehicle from another intermediary. Furthermore, the appellant emphasized that the Customs Act imposed liability only on the actual importer or, in rare cases, on an unknown owner. The appellant also pointed out that the registration certificate still reflected the name of the original importer, thus legally making him the vehicle’s owner under the Motor Vehicles Act, 1988. Consequently, the appellant asserted that he could not be held responsible for the alleged undervaluation and misdeclaration during importation.

Arguments by the Customs Department:

The respondent, represented by the customs department, justified its demand because the appellant, as the possessor of the confiscated vehicle, was liable to pay the differential customs duty upon redeeming it under Section 125 of the Customs Act. They argued that since the vehicle was in the appellant’s possession, he had de facto ownership and thus bore responsibility for any outstanding customs duty. The department further contended that allowing subsequent purchasers to avoid liability would provide a loophole for evading customs duties, especially in cases of misdeclaration or undervaluation. They insisted that the appellant had the option to redeem the car by paying the fine and duty but refused to comply with the statutory requirements.

Court’s Judgment:

After a thorough examination, the Supreme Court ruled in favour of the appellant, holding that the subsequent purchaser of an imported vehicle could not be equated with an importer under the Customs Act. The Court emphasized that the appellant was neither involved in the importation process nor the beneficiary of the import. It noted that the original importer, Jalaludheen Kunhi Thayil, remained the legal owner of the vehicle, as reflected in its registration certificate under the Motor Vehicles Act, 1988. The Court dismissed the customs department’s contention that the appellant’s possession of the vehicle made him liable under Section 125 of the Customs Act. It clarified that liability under this provision arises only when the owner of the goods is unknown, which was not the case here.

Highlighting the legal principles, the Court observed that the appellant’s name did not appear on the vehicle’s registration certificate, a decisive factor in determining ownership under the law. Consequently, the initiation of proceedings against the appellant, including the issuance of a show-cause notice and the subsequent seizure and confiscation of the vehicle, was declared unlawful.

The Supreme Court also pointed out the flaws in the customs department’s approach, stating that their argument could potentially extend liability to innocent purchasers of imported goods, disrupting the foundational principles of trade and commerce. Such an interpretation would be contrary to the statutory framework, which seeks to hold accountable those directly involved in customs violations.

The Court allowed the appeal, setting aside the High Court’s decision, and reiterated that customs duties and penalties must be imposed strictly per statutory provisions.