Customs Duty on Imported Vehicles: Liability Limited to Importers, Not Subsequent Purchasers

Introduction

In a recent judgment[1] of a two – judge bench of the Hon’ble Supreme Court of India comprising of Hon’ble Justices B.V Nagarathna and N. Kotiswar Singh quashed a case under the Customs Act registered against the appellant who had purchased a car from the importer of vehicles and noted that a subsequent purchaser cannot be charged for paying customs duty and clarified that as per Section 125(1), the possessor of an imported vehicle can be made liable for payment of custom duty only in case the owner of goods is not known.

Background of the Case

The appellant in the present case had approached the Hon’ble Supreme Court of India for challenging an order of the Kerala High Court which had allowed the Customs Appeal filed by the Respondent Customs Department for answering the issues raised in favour of the Department of Revenue against the appellant.

The Division Bench in the present case comprising Justice B.V Nagarathna and N. Kotiswar Singh held that the appellant in the present case was merely a purchaser of the vehicle from the previous owner who had also purchased the same from an importer of vehicles. Therefore, in the present case, the appellant cannot be charged for paying the amount of customs duty under Section 28 of the Customs Act as an importer of goods within the meaning of the Customs Act 1962 within the meaning of the definition of importer.

Analysis of Court’s Jurisprudence

According to the term ‘importer’ as mentioned under Section 2(26) of Customs Act 1962, it was observed by the Bench that the term may include an owner, a beneficial owner or any person who holds himself as an importer. However, the above individuals or entities would only fall under the definition of importer during the tenure of purchase or acquisition. A subsequent purchaser who purchases a vehicle can therefore not be deemed to be an importer in case he/she has purchased the vehicle from an importer or an individual/entity who had purchased prior to him.

Moreover, making a reference to the Motor Vehicles Act 1988 it can also be analysed that the owner of a motor vehicle is one under whose name a vehicle is registered. Therefore in the present case the vehicle had not been registered in the name of the appellant and continued to be registered in the name of the prior owner who had already purchased it from the importer, thereby exonerating the appellant from any liability of paying customs tax. Therefore any demand or liability to pay customs duty cannot be affixed upon the appellant or any entity merely because they are in the possession of the vehicle and the liability lies either upon the importer or the registered owner and not the subsequent purchaser or parties unrelated to the transaction.

According to the Customs Act 1962, Section 12 provides a fundamental basis for imposing customs duty on imported and exported goods and determines the method for evaluating the amount of duty payable. Moreover, according to Section 125(1) of the Act, the possessor of any goods can only be liable for payment of customs duty when the owner of the goods is unknown.

Customs Law in India on Imported Goods and Vehicles

The Indian jurisprudence pertaining to imports of goods and vehicles in India is governed by Customs Act 1962 which is the primary legislation that outlines the procedures and regulations for importing goods in India and payment of customs duty and taxes. According to the act, there are various factors that decide the amount of customs duty payable by the importer or owner which include the cost, insurance, freight etc. There are numerous other taxes and duties payable additionally upon the imported vehicle or goods such as excise duty, countervailing duty, educational cess or Goods and Services Tax. However, the act also provides for various exemptions for imported vehicles such as those imported for testing and certification purposes by the notifying agencies.

In another landmark judgment of Union of India V. M/S Mohit Minerals Pvt. Ltd., the Hon’ble Supreme Court had clarified the scope of the term ‘importer’ in context of Section 12 of the Act and noted that the liability of payment of customs duty lies upon the importer and not merely upon the possessor.

Conclusion

The present ruling has clarified and reinforced the well settled legal principle that the liability of customs duty should align with the responsibility of import and ownership which is essential to provide protection to subsequent purchasers from undue responsibility. Secondly, even though the imported goods may be found in possession of an individual, there is no strict liability for imposing and incurring custom duty upon them since Section 125 of the Act provides that mere possession cannot be construed as ownership for the purpose of imposing such duty and the burden of paying such duty would lie upon the possessor only when the actual owner of the goods cannot be located or identified.

Any form of taxation imposed upon subsequent purchasers is not only contrary to the well settled principle of avoidance of double taxation but also goes contrary to the tenets of Indian customs laws since the importer or owner has already discharged the burden of paying customs duty to the concerned agencies. Additionally, terming the subsequent purchasers as equivalent to importers would also lead to imposition of duty contrary to law.

The present judgment has therefore reiterated and clarified the tenets of customs laws and laid down the jurisprudence regarding imposition of customs duty on imported vehicles in the country along with adjudicating upon numerous issues such as ownership versus possession of vehicles and definition of the term ‘importer’ in context of customs laws.

The present judgment can be accessed here.

[1] https://api.sci.gov.in/supremecourt/2018/21743/21743_2018_8_10_57417_Judgement_27-Nov-2024.pdf

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