Telangana High Court

Konudula Raghavendra Reddy vs Union Of India on 24 November, 2023

Author: P.Sam Koshy

Bench: P.Sam Koshy, N.Tukaramji

              THE HON'BLE SRI JUSTICE P.SAM KOSHY
                                      AND
              THE HON'BLE SRI JUSTICE N.TUKARAMJI

                   WRIT PETITION No.27195 of 2023

ORDER :

(per Hon'ble Sri Justice P.SAM KOSHY)

The present writ petition is filed seeking the following relief:

"...to issue a writ, order or direction especially one in the nature of Writ of Mandamus,

1. Declaring the action of the respondent No.3 in issuing C.No.I/10/29/2020-Pors, Dated 07.2023 and the action of the respondent no. 4 in passing order in compounding order no.4 of 2023 dated 12.09.2023 in furtherance of the action of the respondent no. 3 in issuing C.No.I/10/29/2020- Pros, Dated 07.2023 as illegal, arbitrary, unconstitutional and infringing art 14, 19, 20, 21 of Constitution of India.

2. To set aside C.No.I/10/29/2020-Pros, Dated 07.2023 issued by respondent no. 3 along with compounding order no.4 of 2023 dated 12.09.2023 passed by respondent no. 4 and all other proceedings..."

2. Heard Sri Yemmiganur Soma Srinath Reddy, learned counsel

for the petitioner and Sri Dominic Fernandes, learned counsel

appearing for the respondent-Department.

3. The brief facts relevant for adjudication of the present writ

petition are that on 05.10.2016, a person by the name Sri Ambala

Sreedhar Reddy was intercepted by the Directorate of Revenue

Intelligence (DRI), Hyderabad, at the Rajiv Gandhi International

Airport, Hyderabad, when the aforesaid person was about to board

the flight traveling by Air Asia flight AK 068 scheduled at 23.55 hrs on

05.10.2016 to Kuala Lampur. Upon enquiry, he informed that he is

carrying certain medicines to Vietnam which were there in his

checked in baggage. As a consequence of his disclosure of carrying

certain medicines, the checked in baggage were retrieved and were

opened and checked.

4. In the course of checking, it was found that the said person was

smuggling certain high value medicines in the commercial quantity

out of India to Vietnam. In the course of further enquiry, it was found

that the checked in baggage contained 247 boxes of prescription

drugs manufactured by various leading pharmaceutical companies.

These medicines were required for treatment of Hepatitis C. The total

value of those goods as per the Maximum Retail Price (MRP) was

around Rs.53,45,000/-. Upon further questioning the said Sri Ambala

Sreedhar Reddy, it was found that:

 That he did not have any drug license or license to export the medicines out of India.

 That he was working with M/s. Haeal Pharma and carrying the goods for delivery in Ho Chi Minh City, Vietnam to a person by name Chang, who would come and collect the medicines from him at the hotel.

 That he had carried the medicines in similar fashion, during his previous trips (15/16 times).

 That he is undertaking the trips to Vietnam carrying medicines, as directed by Shri K. Raghavendra Reddy, owner of M/s. Haeal Pharma (i.e., the Applicant herein).

 That he is not aware of their company has any drug license and IE Code.

5. During the course of investigation in the statement recorded

under Section 108 of the Customs Act, 1962 (for short 'the Act'), the

said Sri Ambala Sreedhar Reddy stated that:

 He travels frequently to Vietnam, as per the instructions given by his employer Shri K. Raghavendra Reddy. (i.e., the Applicant herein)

 He had travelled to Ho Chi Minh City 19 times since January, 2016; that each time he carried Prescription drugs for 1 Hepatitis C; that Haeal Pharma is in the business of trading in drugs and is owned by Shri K. Raghavendra Reddy, who also owns Hira Enterprises.

 Shri Raghavendra Reddy (the Applicant herein) deals in Hepatitis C drugs of various leading companies. That they purchase the Hepatitis C Drugs (Ledipasvir and Sofosbuvir Tablets 90 ing+ 400 mg. Sofosbuvir tablets, Daclatasvir Dihydrochloride, etc.) from various distributors and sell these drugs in Russia, Hong Kong, China, Ukraine, which are dispatched by speed post (EMS).

 That they prepare fake prescriptions in the name of Dr. Chaitanya Rao of Sanjeevani for this reason and no doctor exists by that name.

 That the mobile number 9618653653 belongs to wife of Shri. K. Raghavendra Reddy (the Applicant herein).

 That they use the letter head of Dr. Chaitanya Rao (mentioned as Chaitanya Rao) so that their postal consignments are not stopped by Customs, Drug Administration and at the destination country.

6. In the light of the statement of Sri Ambala Sreedhar Reddy, the

petitioner herein was also subjected to enquiry and he had also

recorded his statement under Section 108 of the Act wherein he has

specifically stated as under:

 That they resorted to sending the Hepatitis C medicines in tablet form through persons in their checked-in baggage and the persons who go to Vietnam will hand over the

same and collect the amount from the concerned person and the same is brought to India. Generally, his employee, Shri A. Sreedhar Reddy carries the Hepatitis C tablets in his checked-in baggage to Vietnam and hands over the same to the concerned person in Vietnam and collects the amount from him and comes back to India.

 That they do not have any export permission from the Drug Controller. That as per their stocklist agreement with the companies mentioned above, they are stockists in India and to the region mentioned therein.

 That they had gone through the panchanama dated 05/06.10.2016 and appended his dated signature. That he had given these Hepatitis C medicines to the Applicant, an employee of his company Haeal Pharma to handover to Mr. Chang in Ho Chi Minh City, Vietnam. That at his instance only, his employee Sri Ambala Sreedhar Reddy carried these medicines in his checked in baggage to Vietnam and hands over the same there to Mr. Chang in Ho Chi Minh City, Vietnam and comes back with amount collected for the goods carried by him to India. That he had gone through the statement of Sri A. Sreedhar Reddy and had appended his dated signature in token having seen and confirmed that the statement of Sri Ambala Sreedhar Reddy as true and correct.

 That as regards medicines sent to Vietnam through person (Shri Ambala Sreedhar Reddy), they don't raise any invoice, as the medicines are consigned to a supplier to some hospitals. That, however, they account for the same as local sales and the same are included in their cash sales. That on 05/06.10.2016, Shri Sreedhar Reddy was not carrying any invoice for the goods being carried to Vietnam. That Shri Sreedhar Reddy works for him and they draw his salary in Haeal Pharma. That, the Hepatitis C Tablets (247 bottles of 28 tablets each) carried by him belong to Hira Enterprises, a firm owned by him.

7. On the basis of the investigation, proceedings under the Act

was initiated by the respondent No.6 and the Order-in-Original was

passed on 28.04.2017 holding as under:

"i) 247 Boxes of prescription Drugs (Hepatitis C Medicines) valued at Rs. 53,45,000 detained under panchanama dated 05/06.10.2016 and seized vide memorandum dated

24.11.2016, are absolutely confiscated in terms of Sections Sections 113(d) of the Customs Act, 1962.

ii) The suitcase, having no commercial value used for carrying the medicines for Hepatitis-C by the notices is hereby confiscated under Section 118(b) of the Customs Act, 1962.

iii) I impose penalty of Rs. 2,50,000 (Rupess Two Lakhs Fifty Thousand only) under Section 114(i) of the Customs Act, 1962, on Shri Ambala Sreedhar Reddy for the above said offences.

iv) I impose penalty of Rs. 2,50,000 (Rupees Two Lakhs Fifty Thousand only) under Section 114(i) of the Customs Act, 1962. on Shri Konudula Raghavendra Reddy for the above said offences."

The said order was subjected to challenge before the first Appellate

Authority i.e., the respondent No.5. The respondent No.5 confirming

the order of the respondent No.6 had dismissed the appeal vide order

dated 28.02.2018.

8. Subsequent to the finalization of the Order-in-Original, the

respondent No.3 issued notice in July, 2022 (date not given) and

ordered for initiation of prosecution proceedings under Section

135(1)(b) read with Section 135 (1) (ii) of the Act. As soon as the said

notice of prosecution was issued to the petitioner, he though belatedly

preferred an appeal against the order passed by the respondent No.6

dated 28.02.2018 before the Customs, Excise and Service Tax

Appellate Tribunal (herein referred to as 'the Tribunal') vide Customs

Appeal No.30383 of 2023. After condoning the delay, the Tribunal

proceeded to decide the appeal on merits and vide order dated

06.09.2023 the appeal was allowed in part. The order of confiscation

was maintained and the valuation of goods was reduced to

Rs.19,00,000/- instead of Rs.53,45,000/- and the order of penalty of

Rs.2,50,000/- was reduced to Rs.50,000/-.

9. Subsequent to the order of the Tribunal in response to the

earlier notice of prosecution issued by the respondent No.3, the

petitioner appeared before the officer concerned on 08.09.2023 i.e.

after the appeal stood decided by the Tribunal. The petitioner pressed

before the respondent No.3 for accepting the compounding application

and requested the respondent No.3 to allow the application for

compounding. For ready reference, it would be relevant at this

juncture to record the statement of the petitioner made before the

respondent No.3 on 08.09.2023 during the course of personal hearing

on the matter of compounding of offense which reads as under:

"Sh. K. Raghavendra Reddy appeared before me in person. for continuation of PH held on 01.09.2023, Sh. Reddy submitted that he desires to purse the present compounding application even though his appeal is pending in CESTAT. He reiterated the submissions made in the compounding application and the hearings held earlier. Sh. Reddy, accordingly, requested that the present compounding applications may be allowed. "

10. Based upon the said statement made by the petitioner himself,

the impugned order on the application for compounding dated

12.09.2023 was passed, where the request of the petitioner for

compounding of offense was acceded and the following order was

passed allowing the application for compounding.

"(i) The applications dated 20.08.2022 of the Applicant for compounding under the provisions of Section 137(3) of the Customs Act, 1962 read with Rules 4(3) and 5 of the Customs (Compounding of Offences) Rules, 2005, is allowed on payment of compounding amount of Rs.5,34,500/- (Rupees Five lakh thirty four thousand five hundred only).

(ii) The Applicant is required to pay the compounding amount as ordered at (i) above, within thirty days of receipt of this order and furnish the proof of such payment to the Compounding Authority, in terms of Rule 4(5) of the Customs (Compounding of Offences) Rules, 2005; and

(iii) Immunity is granted to the Applicant from prosecution under Customs Act, 1962 with respect to this case, under Rule 6 of the Customs (Compounding of Offences) Rules, 2005 subject to the following conditions that are imposed in accordance with Rule 7 of the said Rules;

(a) The immunity shall stand withdrawn if the applicant fails to pay the compounding amount as ordered at (i) above, within the time specified at (ii) above, and thereupon the provisions of the Customs Act, 1962 shall apply as if no such immunity has been granted to him.

(b) The immunity may at any time be withdrawn, if it is found that the applicant has in the course of these proceedings concealed any material particulars or had given false evidence, and thereupon the provisions of the Customs Act, 1962 shall apply as if no such immunity has been granted to him."

11. Immediately, after the order dated 12.09.2023 at the behest of

the petitioner having been passed, the petitioner turned around and

has now filed the present writ petition on 27.09.2023 challenging the

order passed on the application for compounding of offense. The

petitioner had raised various grounds to challenge the prosecution

proceedings itself.

12. According to the learned counsel for the petitioner, at the first

instance, awarding of an amount of Rs.53,45,000/- towards payment

of compounding amount is per se contrary to the guidelines which

have been issued by the State Government in this regard where

according to the provisions of Section 134 (1) (b) of the Act, the rate

for fixing the compoundable offense is 5% of the total value of the

goods. It was also the contention of the learned counsel for the

petitioner that the authority concerned also has erred in as much as

not appreciating the fact that in the appeal before the Tribunal, the

value of the product itself has got substantially reduced and therefore

the amount payable under compounding of the offense also needs to

be re-worked. Thus, prayed for issuance of an appropriate writ in the

nature of Mandamus.

13. Per contra, according to the learned counsel for the respondent-

Department, it is a case where the Order-in-Original was passed on

28.04.2017 and it was directed by the respondent No.6 for

confiscation of the restricted drugs seized from the possession of the

petitioner. In addition, the petitioner was also imposed with penalty of

Rs.2,50,000/- each against the person who was carrying the drugs

along with him and also against the petitioner whose drugs the other

person was carrying. The said order was subjected to challenge in an

appeal before the respondent No.5 and the respondent No.5 confirmed

the order of the respondent No.6 dismissing the appeal way back on

28.02.2018.

14. The order of the respondent No.5 affirming the order passed by

the respondent No.6 was not challenged by the petitioner any further.

The said order as such has attained finality. When there was no

further challenge to the Order-in-Original and also order passed by

the respondent No.5, the respondent No.3 had initiated the

prosecution proceedings under Section 135(1)(b) and Section 135(1)(ii)

of the Act.

15. The preliminary objection that the learned counsel for the

respondent-Department has raised was that upon receipt of the notice

of prosecution under Section 135(1)(b) where it was specially

mentioned that if the petitioner wants, he may seek for compounding

of the offence. The said objection was voluntarily with no element of

compulsion, coercion or pressure on the part of the respondent No.3.

It was this notice of prosecution which was of July, 2022, which was

accepted by the petitioner by availing the option of compounding of

the offence.

16. According to the learned counsel for the respondent-

Department, the impugned order (Annexure P2) dated 12.09.2023

passed by the respondent No.4 was only at the behest of the option

availed by the present petitioner. Having availed the option of

compounding of the offence once and the authorities having acceded

to the request of the petitioner and the impugned order thereafter

having been passed, the petitioner is estopped from now turning

around and challenging the entire proceedings passed on the

compounding application and also challenging the initiation of

prosecution. According to the learned counsel for the respondent-

Department, this being the factual backdrop, the writ petition itself

should not be entertained at this juncture, as petitioner is bound by

his own conduct and therefore the writ petition should be rejected

with heavy costs.

17. It was the further contention of the learned counsel for the

respondent-Department that if at all, if the petitioner is aggrieved; he

ought to have availed the remedy available under the provisions of

law.

18. Having heard the contentions put forth on either side and on

perusal of records, from the narration of facts as is evident from the

preceding paragraphs, what is apparent is that in July, 2022, i.e.

more than a year back, the petitioner was issued with a notice of

prosecution under Section 135(1)(b) read with Section 135(1)(ii) of the

Act. Based upon the said notice, the petitioner herein accepting the

option of compounding of offence has filed an application before the

respondent No.4 seeking for compounding of the offence under

Section 137(3) of the Act. The said application was duly signed by the

petitioner himself and the matter thereafter was pending

consideration before the respondent No.4 for almost about thirteen

(13) months. All through this period also, the petitioner did not

thought it proper for challenging the initiation of prosecution or at

any point of time during the said period, withdraw the application for

compounding of offence. In the given factual backdrop, if the

respondent No.4 having passed the impugned order accepting the

application for compounding, the same under no circumstances can

be said to be illegal in any manner, nor can it be said to be contrary to

law.

19. Undoubtedly, the petitioner was found to be involved in

smuggling of 247 boxes of prescription drugs which could not be

exported without due clearance and completion of statutory

formalities. Further, it is also an admitted fact that for the said act of

smuggling, he was prosecuted and the entire product was confiscated

and was also imposed penalty was also imposed. The said order was

also affirmed by the Tribunal and the same was not challenged any

further.

20. Another fact which needs to be considered is that after the

notice of prosecution was received by the petitioner, he immediately

woke back from slumber and filed an appeal against the order of the

appellate authority dated 28.02.2018 before the Tribunal which was

partly allowed on 06.09.2023 where the order of confiscation is made

absolute and the value of goods seized was reduced and rounded of at

Rs.19,00,000/-. In addition, the penalty that was imposed upon the

petitioner of Rs.2,50,000/- was reduced to Rs.50,000/-. Surprisingly,

even after the decision of the Tribunal partly allowing the appeal on

06.09.2023, the petitioner herein entered appearance before the

authorities concerned and pursued his application for compounding

of offence which stood finally accepted vide the impugned order dated

12.09.2023.

21. In the teeth of such developments that have transpired, it would

not be appropriate to exercise the extraordinary Writ jurisdiction of

this Court under Article 226 of the Constitution of India interdicting

the impugned order. The writ petition to the aforesaid extent for the

aforesaid reasons would not be maintainable. However, taking into

consideration the fact that the initial show cause notice for

prosecution that was initiated under Section 135(1)(b) read with

Section 135 (1)(ii) of the Act, the Government of India, Ministry of

Finance, Department of Revenue, Central Board of Excise & Customs

(Anti-Smuggling Unit) had issued a Circular No.27 of 2015 dated

23.10.2015. The said Circular laid down the compounding amount in

the course of compounding of the various offences under the various

provisions of the Act. So far as the rate applicable for quantifying the

compounding amount in respect of an offence under Section 135(1)(b),

the compounding amount is up to 5% of the market value of the

goods subject to minimum of Rs.1,00,000/-. Though the learned

counsel for the respondent-Department does not dispute the issuance

of the Circular No.27 of 2015, however, submitted that the

proceedings were as per the note sheets on the basis of which the

notice of prosecution was initiated.

22. Under the said circumstances, since it is mandatory for the

Department to have adhered to the guidelines laid down in the said

Circular No.27 of 2015 and which stood modified and clarified on

various occasions from time to time, it was not justifiable for the

authorities concerned to have ignored the said guidelines and

imposed unreasonable penalty as has been done in the instant case.

Once when there is an upper gap limit of 5%, there was no power

conferred with the authorities concerned with which the said amount

could have been raised. At the same time, the notice having been

issued only under Section 135(1)(b) even though the note sheets

which were prepared were under the various provisions of the Act

which would of no relevance and the penalty that could be imposed

would be at which the compounding amount has to be fixed, has to be

only to the provisions of law reflected in the notice initiating

prosecution.

23. The High Court of Delhi in the case of Vikram Singh Versus

Union of India & Ors. 1 dealing with somewhat similar set of facts in

paragraph Nos.51 and 57 held as under:

2018 SCC OnLine Del 6725

"51. Having filed the compounding application the petitioner cannot attempt to wriggle out of his obligations to pay the compounding charges by alleging that the same are exorbitant. The amount of compounding charges is not to be merely compared with the principal and the interest charged but has to be adjudged from the point of view of the long duration during which there was willful non-

payment of taxes. The conduct of the petitioner brooks no sympathy. The respondent authorities, it appears, were helpless. Even filing of criminal prosecution appears to have made no difference. The judgments discussed above are clear to the effect that in cases of this nature, quid pro quo or proportionality is not always applicable.

57. The petitioner having voluntarily agreed and undertaken to the department to pay the compounding charges and to withdraw his appeal, ought to be directed to be bound down by the same. It is a settlement process voluntarily invoked by the petitioner in order to escape criminal prosecution under the Act. Since an accused may have to suffer severe consequences for non-payment of tax, if he is held to be guilty, it is not open to him to challenge the reasonableness of the same. The petitioner had consciously undertaken to abide by the decision of the Committee constituted for compounding the offences."

24. Accordingly, we are of the considered opinion that the rate at

which the compounding amount has been finalized by the authorities

concerned does not seem to be proper, legal and justified and the

compounding amount so finalized under the order of compounding

dated 12.09.2023 is liable to be limited to 5% in terms of the Circular

No.27 of 2015. To that extent the compounding amount deserves to

be and accordingly stands modified.

25. In view of the same, we do not find any strong case made out by

the petitioner calling for an interference with the impugned notice

initiating prosecution and secondly the order dated 12.09.2023

whereby the application for compounding moved by the petitioner

should be interfered with. The writ petition to the aforesaid extent