HC Quashes Customs SCNs Against Foreign Exporter for Pre-2018 Period; No Extra-Territorial Jurisdiction Under Customs Act

The petitioners, Karl Mayer STOLL Textilmaschinenfabrik GmbH (a German company) and its Indian affiliate, manufacture and supply textile machinery to Indian importers. Between 2014 and 2017, machines were exported to India. The Directorate of Revenue Intelligence (DRI) later alleged that Indian importers mis-declared the machines to claim exemption benefits.

Show-cause notices were issued to the importers as well as the foreign exporter and its Indian affiliate, alleging abetment and proposing penalties under Sections 112 and 114AA of the Customs Act, 1962. The petitioners challenged these notices before the High Court, stating that Customs authorities had no jurisdiction over a foreign entity for a period before the 2018 amendment extending extra-territorial application.

Main Issue: Whether Customs authorities can issue show-cause notices to a foreign exporter for transactions before the 2018 amendment to Section 1(2) of the Customs Act, and hold it liable for misdeclaration by Indian importers.

HC Ruled: The Hon’ble High Court allowed the petitions and set aside the show-cause notices. It held that before 29.03.2018, the Customs Act had no extra-territorial application, so proceedings against a foreign exporter for earlier transactions were without jurisdiction.

The Court clarified that the duty to correctly declare goods and pay duty lies on the importer. A foreign exporter, whose role ends with shipment, cannot be penalised for mis-declaration by importers without proof of active involvement.

It also held that the 2018 amendment is prospective and cannot apply to past transactions. As no act or omission by the petitioners was shown to attract penalties, the notices and proceedings were quashed.

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