ANALYSIS OF THE AMENDMENTS TO S.

104 OF THE CUSTOMS ACT,

1962

TABLE OF CONTENTS
ABSTRACT................................................................................................................................2
INTRODUCTION.......................................................................................................................2
THE OM PRAKASH CASE.......................................................................................................4
THE EFFECT OF THE AMENDMENT SHOULD BE NON- RETROSPECTIVE..................5
THE AMENDMENT HAS INCREASED THE CHANCES OF MAKING AN ARREST
WITHOUT ANY PROPER ASSESSMENT OF THE DUTY....................................................8
THE AMENDMENT DOES NOT CLASSIFY DUTY EVADERS IN A RATIONAL
MANNER....................................................................................................................................9
SUGGESTIONS........................................................................................................................13
CONCLUSION..........................................................................................................................14

ABSTRACT
A burning issue that has been making headlines in the legal world in recent times is the validity
of the amendment that has been made to S. 104 of the Customs Act, 1962 1 by way of the Finance
Act, 2013.2 The amendment has generated a lot of diverse views among the legal fraternity. As is
being claimed by many reputed jurists, these amendments are certainly bad in law. But why is it
so? This article is an attempt to analyse the amendments and find out reasons as to why it should
be scrapped out of the statute. It further aims to give solutions on how to punish heavy duty
evaders, the end for which this amendment seems to have been passed by the legislature.
INTRODUCTION
S. 104 of the Customs Act, 1962 provides for the power to arrest in case of offences related to the
said Act. This provision also provided for the offences to be non- cognizable 3 and bailable.4
There have been two amendments made to this provision by way of the Finance Act, 2012 and
the Finance Act, 2013.
The amendments to S. 104 of the Customs Act, 1962 are as follows1. Substitution of the earlier sub-section (4) by the Finance Act, 2012, 5 which now provides as
follows(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any
offence relating to(a) prohibited goods; or
1 Act 52 of 1962 [always referred to as the Customs Act, 1962].
2 Act 17 of 2013, w.e.f. 10-05-2013 [hereinafter referred to as the Finance Act, 2013].
3 S. 104(5), The Customs Act, 1962.
4 Earlier provided under S. 104(6), The Customs Act, 1962. Now provided by S. 104(7), The
Customs Act, 1962.
5 Act 23 of 2012, w.e.f. 28-05-2012.

(b) evasion or attempted evasion of duty exceeding fifty lakh rupees,

shall be cognizable.
2. Substitution of sub-section (6) by the Finance Act, 2013, which now provides as follows(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence
punishable under section 135 relating to(a) evasion or attempted evasion of duty exceeding fifty lakh rupees; or
(b) prohibited goods notified under section 11 which are also notified under sub-clause (c) of
clause (i) of sub-section (1) of section 135; or
(c) import or export of any goods which have not been declared in accordance with the
provisions of this Act and the market price of which exceeds one crore rupees; or
(d) fraudulently availing of or attempt to avail of drawback or any exemption from duty
provided under this Act, if the amount of drawback or exemption from duty exceeds fifty lakh
rupees, shall be non- bailable.
The amendment which is in question in this article is the second amendment i.e. one by way of
the Finance Act, 2013.
The relevant portion of S. 135 of the Customs Act, 1962 which is in dispute states the following:6
Evasion of duty or prohibitions. (1) Without prejudice to any action that may be taken under
this Act, if any person
(a) is in relation to any goods in any way knowingly concerned in misdeclaration of value or in
any fraudulent evasion or attempt at evasion of any duty chargeable thereon or of any
prohibition for the time being imposed under this Act or any other law for the time being in force
with respect to such goods; or
(b) acquires possession of or is in any way concerned in carrying, removing, depositing,
harbouring, keeping, concealing, selling or purchasing or in any other manner dealing with any
6 Section 135(1), The Customs Act, 1962.

goods which he knows or has reason to believe are liable to confiscation under Section 111 or
Section 113, as the case may be; or
(c) attempts to export any goods which he knows or has reason to believe are liable to
confiscation under Section 113; or
(d) fraudulently avails of or attempts to avail of drawback or any exemption from duty provided
under this Act in connection with export of goods, he shall be punishable,
(i) in the case of an offence relating to,
(A) any goods the market price of which exceeds one crore of rupees; or
(B) the evasion or attempted evasion of duty exceeding fifty lakh of rupees; or
(C) such categories of prohibited goods as the Central Government may, by notification in the
Official Gazette, specify; or
(D) fraudulently availing of or attempting to avail of drawback or any exemption from duty
referred to in clause (d), if the amount of drawback or exemption from duty exceeds thirty lakh of
rupees, with imprisonment for a term which may extend to seven years and with fine:
Provided that in the absence of special and adequate reasons to the contrary to be recorded in
the judgment of the court, such imprisonment shall not be for less than one year;
(ii) in any other case, with imprisonment for a term which may extend to three years, or with
fine, or with both.
THE OM PRAKASH CASE
In the year 2011, the Honble Supreme Court of India, with the decision of Om Prakash v Union
of India7concluded that the offences covered by Section 104 were bailable offences, by virtue of
them being non- cognizable. The scope of the offences provided in the Customs Act, 1962 were
equated with the provisions of the Central Excise Act, 1944 in order to arrive at this conclusion.
It was categorically stated that-

7 2011 (272) ELT 321 (SC).

Offences under Section 135 of the Customs Act, 1962, are bailable and if the person arrested
offers bail, he shall be released on bail in accordance with the provisions of sub-Section (3) of
Section 104 of the Customs Act, 1962, if not wanted in connection with any other offence.8
While it may be said that all the offences under Section 104 should not be non- cognizable and
bailable, it is also not correct to accept this amendment as the only solution, in order to punish
duty evaders whose liabilities are excessive. The said judgment of the Honble Supreme Court
seems to make a general classification of all duty evasion offences as non- cognizable and
bailable. But in a special statute like the Customs Act, 1962, such a decision may have negative
impacts and may result in intentional duty evasions due to the availability of a bail on every
evasion. On the same note, the amendments can be discussed in the following mannera. That the effect of the amendments should not be retrospective.
b. That the amendments do not classify duty evaders in a rational manner.
THE EFFECT OF THE AMENDMENT SHOULD BE NON- RETROSPECTIVE
In criminal jurisprudence, there are two important principlesa. nullum crimen sine lege (there can be no crime without criminal law)
b. nulla poena sine lege (there can be no punishment without criminal law)
The aforementioned principles require that there is a law that is certain, unambiguous and not
retroactive.9 A retroactive law (also known as a retrospective law) has been defined as a law
which takes away or impairs vested rights acquired under existing laws.10 Retrospective laws
affect acts or facts occurring; or rights accruing, before it came into force.11

8 Om Prakash v Union of India, 2011 (272) ELT 321 (SC).

9 Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg
No. 2953, LexisNexis Butterworths Wadhwa Nagpur.
10 Blacks Law Dictionary, Fifth Edition, Pg No. 1184, West.
11 Id.

This principle of non- retrospectivity in penal statutes has been enshrined in Article 20(1) of the
Constitution of India, 1950 which provides as followsNo person shall be convicted of any offence except for violation of a law in force at the time of
the commission of the act charged as an offence, nor be subjected to a penalty greater than that
which might have been inflicted under the law in force at the time of the commission.12
In India, an offender can be liable only if he comes within the plain terms of the penal statute.
Penal statutes which increase penalties for existing offences can only be prospective. This
principle was applied in the case of Soni Devrajbhai Babubhai v State of Gujarat,13 wherein it
was held that S. 304B of the Indian Penal Code, 1860, which created a new offence of dowry
death and brought into the statute on November 11, 1986, would not affect any act concerning
the same before that date. Article 20(1) enumerates two consequences that criminal law must
avoid, which are as follows1. No person shall be convicted of any offence under any law not in force at the time of the
commission of the offence.
2. The penalty for an offence shall not be greater than that which might be inflicted for the
offence under the law which was in force when the offence was committed.
But these principles are restricted only to penal legislations. The principle of non- retrospectivity
has no effect on statutes which are procedural in nature. In Shiv Bahadur Singh Rao v State of
Vindhya Pradesh,14 the Honble Supreme Court of India interpreted Article 20(1) as prohibiting
only conviction and sentence under a retrospective legislation and not a trial under a procedure
which is different from that which was obtained at the time of the commission of the offence.
But there may be exceptional cases in which a change in procedure drastically alters the rights of
the accused. If due to a change in procedure, there is creation of a new offence or increase in the
penalty as it existed at the commission of the offence; Article 20(1) will be attracted.15

12 Article 20(1), The Constitution of India, 1950.

13 AIR 1991 SC 2173.
14 AIR 1953 SC 394.

In cases of fiscal statutes, the ordinary principle of presumption of innocence of the accused is
not applicable. The onus is on the accused to prove that he is not guilty of the alleged offence.
This principle is enshrined in the provisions of the different fiscal statutes. Under the Customs
Act, 1962, Section 138A talks about the presumption of the culpable mental state. It states that
the on a prosecution for an offence under this act, the court shall presume the existence of such
mental state and it is for the accused to prove the non- existence of such mental state beyond
reasonable doubt.16
The amendments to Section 104 of the Customs Act, 1962 have increased the scope of the
punishment i.e. have created a greater penalty i.e. cognizable and non- bailable, for a specific
category of offences under S. 135. The amendment of 2013 in particular, has increased the
gravity of some of the offences under S. 135 of the said act.
The application of these amendments has been held to be retrospective in nature due to them
merely being procedural in nature.17 It appears that the Honble Kerala High Court has erred
onerously in holding so. In fiscal statutes, since the onus of proof of innocence falls squarely on
the accused, the change in procedure which greatly increases the quantum of punishment takes
away a substantial right from the already burdened accused. It also increases the burden of proof
of innocence which is unreasonable. By making the offence non- bailable, the quantum of
punishment has increased, since a non- bailable offence is more severe than a bailable offence,
which in turn requires less proof of innocence by the accused. This amendment has taken away a
substantial right of the accused by increasing the scope of punishment and requiring greater
proof of innocence. And in any case, if an offence is made non- bailable, the gravity of the
offence and the nature of the punishment also increase and therefore, affect the substantial rights
of the accused.
Thus, this amendment is of a nature which has put a greater burden on the accused to prove his
innocence, and has negatively affected a substantial right. Wherein he earlier had a less burden to
15 Randhira v State, AIR 1954 MB 83.
16 Section 138A (1), The Customs Act, 1962.
17 The Kerala High Court Judgment

prove his innocence due to the offence being bailable, the onus of proof of innocence increases
greatly and the test also becomes more severe in order to acquit an accused. Therefore, it is
violative of Article 20(1) and the general principles of criminal law as already mentioned at the
beginning. The principle of retrospectivity must have no application in this amendment. If this
principle is applied then an honest duty payer, who pays his duties correctly and on time, may
suffer, if a change in economic situation (like a recession) pushes his duty liability above fifty
lakhs of rupees.
THE AMENDMENT HAS INCREASED THE CHANCES OF MAKING AN ARREST
WITHOUT ANY PROPER ASSESSMENT OF THE DUTY
Section 104 empowers an officer of customs, empowered by a general or special order to arrest a
person if he has reasons to believe that an offence has been committed by that person. It states-18
If an officer of customs empowered in this behalf by general or special order of the
Commissioner of Customs has reason to believe that any person in India or within the Indian
customs waters has committed an offence punishable under section 132 or section 133 or section
135 or section 135A or section 136, he may arrest such person and shall, as soon as may be,
inform him of the grounds for such arrest.
The expression officer of customs seems to be restricted to one who is empowered by a general
or special order of the Commissioner of Customs. The sub- section does not use the expression
proper officer who has been defined as-19
proper officer, in relation to any functions to be performed under this Act, means the officer of
customs who is assigned those functions by the Board or the Commissioner of Customs;
In any case, while levying a customs duty on an assessee, an important function that must be
carried out is a proper assessment of the goods imported. The two types of assessment under the
Customs Act, 1962 are-

18 Section 104(1), The Customs Act, 1962.

19 Section 2(34), The Customs Act, 1962.

a. Normal assessment of duty.20

b. Provisional assessment of duty.21
In both the cases, it has been categorically stated that it is a proper officer who may carry out the
functions in this regard. The expression proper officer has been categorically used to denote the
functions of such an officer. In Section 104, the expression proper officer has not been used and
with the result of the amendment of 2013, there is a high possibility that a person may be
arrested even if there is no proper assessment carried out. Furthermore, even if the assessment
has been carried out properly, since the officer of customs under Section 104 does not have the
function of carrying out the assessment, he may arrest any person on a mere belief on no proper
grounds that a duty has been evaded. Since a duty evasion of more than fifty lakhs of rupees has
been made non- bailable, there must be a proper assessment done before an arrest can be
effected. As the officer of customs is not a proper officer in this regard, there may be
unreasonable arrests made on even those who have properly paid their duties.
Furthermore, if the goods are abandoned due to non- assessment, there may still be a charge of
an offence on the importer. This is again because of the officer of customs under Section 104 of
the Customs Act, 1962 not being a proper officer empowered to make an assessment. An
offence charged without a proper assessment in case of a fiscal statute is totally unreasonable.
Sections 17 and 18 of the Customs Act, 1962 must be given proper effect in cases where duty
evasions beyond a fixed limit are severely punished (in this case, made non- bailable). This is
another situation that may arise as a result of the said amendment.
THE AMENDMENT DOES NOT CLASSIFY DUTY EVADERS IN A RATIONAL
MANNER
Furthermore, if the amendments are analysed closely then it appears that the classification of the
offences under Section 135 itself for the purposes of Section 104, does not have a reasonable
basis. The offence of evasion of duty or prohibitions under S. 135 of the Customs Act, 1962 as a
whole is covered under S. 104(1) which also has the effect of describing such an offence as noncognizable. The said amendments only take out a select class of offences from S. 135 and make
20 Section 17, The Customs Act, 1962.
21 Section 18, The Customs Act, 1962.

them cognizable and non- bailable. Furthermore, the evasion or attempted evasion of duty
covered by these amendments is that exceeding fifty lakh rupees. Only the following offences
under Section 135 are non- bailable:22
a. Evasion or attempted evasion of duty exceeding fifty lakh rupees
b. Prohibited goods notified under section 11 which are also notified under sub-clause (c)
of clause (i) of sub-section (1) of section 135
c. Import or export of any goods, the market price of which exceeds one crore rupees and
which have not been declared in accordance with this Act
d. Fraudulently availing of or attempt to avail of drawback or any exemption from duty
provided under this Act, if the amount of drawback or exemption from duty exceeds fifty
lakh rupees.
This classification of a select class of offences under Section 135 as non- bailable and the
remaining offences as bailable does not have a sound basis. Especially on the basis of a sum of
fifty lakh rupees prescribed for evasion or attempted evasion of duty,23 which appears to be one
without any proper calculation of the duty to be paid. The unreasonable classification creates
different classes of duty evaders without any reasonable basis. It distinguishes between-

Those with a duty liability of more than fifty lakh rupees and those with a liability of less

than the said amount.

Those duty evaders dealing with goods of market value of more than one crore of rupees
and those dealing with goods of market value of less than one crore of rupees.

As already mentioned above, it appears that the value of fifty lakh rupees of duty or market value
of one crore of rupees have not been arrived at by any proper computation. Based on this
amendment, it can be concluded that duty evasion of Rs. 49.99 lakhs of rupees is less severe than
a duty evasion of Rs. 50.01 lakhs of rupees. This does not keep all the duty evaders on the same
pedestal and violates the right to equality as provided under Article 14 of the Constitution of

22 Section 135, The Customs Act, 1962.

23 Finance Act, 2013.

India, 1950.24 Furthermore, it provides for a fixed value of evasion of customs duty of fifty lakh
rupees irrespective of the volume of goods imported. To take an illustrationA imports x quantity of diamonds from South Africa. B also imports x quantity of diamonds,
but from Australia. The exchange rates in both the countries are different. The diamonds
imported from Australia are cheaper than those imported from South Africa. Since the customs
duty is calculated out of the market value of the goods, B pays less duty than A, with A paying
more than fifty lakh rupees while B paying less than this amount. If there is failure by both to
pay their duties, B gets away with a bail and the payment of the fine, while A faces a harsher
punishment due to his liability being more than fifty lakh rupees.
Since a customs duty evasion is a crime, it may be argued that all duty evaders must be kept on
the same footing. But it is also understandable that some duty evasions can be awarded with
lesser punishment if the amount is so less as to be negligible. A duty evasion to the tune of five
lakhs of rupees cannot be equated with a duty evasion of fifty lakhs of rupees. The two duty
evaders must be treated differently. But the question that arises is how to classify the duty
evasions into different categories. As much as it appears that all duty evaders must be treated
equally, the same is not practically possible due to the type of variations that may arise in duty
evasions as stated above.
Due to the current amendment to the Customs Act, 1962, a classification has been made between
the different duty payers as already pointed out above. The question which arises here is whether
the classification is reasonable. In the case of State of West Bengal v Anwar Ali Sarkar,25 the
Honble Supreme Court of India held that any classification must be based on a reasonable and
sound basis. In this context, classification can be defined asClassification means segregation in classes which have a systematic relation, usually found in
common properties and characteristics. It postulates a rational basis and does not mean herding
together of certain persons and classes arbitrarily.26

24 Article 14, The Constitution of India, 1950.

25 AIR 1952 SC 75.

This classification is a must in order to ensure equality among equals as enshrined in the
Constitution of India, 1950.27 The classification must have a rational or reasonable nexus with the
object to be achieved. Such a differentiation/classification is inherent in the concept of equality
under the Indian constitution.28 If there are intelligible differentia which separate a group within a
specific class from the rest and that differentia have a nexus with the object of classification, then
such a classification can be said to be reasonable. 29 Thus, a differentia which is the basis of
classification and the object of Article 14 of the Constitution of India are two distinct things, and
what is necessary is that there must be a nexus between them.30
It is in this regard, that the amendment made to the Customs Act, 1962 must be analysed. As
already stated above, the effect of this amendment has led to a classification between the payers
of Customs duty into two categories i.e. a) those who have to pay a duty which is over fifty lakhs
of rupees and b) those who have to pay a duty which less than fifty lakhs of rupees. 31 It may be
argued that the object of this amendment is to punish those who escape paying heavy customs
duties and bring them on par with the other duty payers. But such a classification treats only duty
evasions of more than fifty lakhs of rupees to be heavy duty evasions. There is no reasonable
basis as to quantify the amount of rupees fifty lakhs and creating two different classes of duty
evaders. There has been no proper computation given in order to arrive at the aforementioned
figure. In fact, any type of specific quantification of duty in order to increase the severity of

26 State of West Bengal v Anwar Ali Sarkar, AIR 1952 SC 75.

27 Article 14, The Constitution of India, 1950.
28 Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg
No. 1397, LexisNexis Butterworths Wadhwa Nagpur.
29 Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg
No. 1397-98, LexisNexis Butterworths Wadhwa Nagpur.
30 State of West Bengal v Anwar Ali Sarkar, AIR 1952 SC 75.
31 Finance Act, 2013.

punishment for duty evasion, above that quantified duty would be unreasonable. The same can
be explained with the help of the factual situation as already given above.
Since evasion of duty is to be punished, it may be contended that this is a good law that seeks to
punish duty payers heavily. But this also leads to a situation in which a duty evader who
marginally falls short of the limit of fifty lakhs of rupees, may get away with just a bail. The
amendment also does not take into consideration the type of commodity imported and the
quantity imported. For example, an importer, importing 50 tonnes of cotton may pay a
marginally higher duty than another importer who imports 25 diamonds. The nature of the
commodities in the present case i.e. cotton and diamond, are extremely different and the quantum
of fifty lakhs of rupees as specified by the amendment does not take this into account.
Furthermore, classification of an economic offence on the basis of market values of goods (in
this case one crore of rupees) without any reference to the quantity of goods is also completely
unreasonable, since two different commodities having a market value of one crore of rupees may
differ in quantity. The type or category to which a particular commodity belongs to is also not
taken into account. The classification of the duty evaders into two categories fails the test of
intelligible differentia since it is not capable of being understood 32 due to a lack of a reasonable
basis.
Another situation that is not taken into account by the amendment by way of the Finance Act,
2013 is where bona fide belief by an assessee with regard to valuation, classification,
interpretation of the statute and allied matters is disregarded with that of the department. Due to
this amendment, the revenue department(s) will have absolute power to arrest the assessee for
alleged evasion on the basis of the alleged belief as pointed out above.
The situations given above are just a few of the many situations where the classification as
created by the amendment is violative of the concept of equality. Punishing duty evaders whose
liabilities exceed beyond a reasonable limit is acceptable, but fixing a minimum specific limit of
fifty lakh rupees or any value without any reasonable justification, beyond which the evasion is

32 Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg
No. 1427, LexisNexis Butterworths Wadhwa Nagpur.

non- bailable is not the correct way of punishing such duty evaders. But the nagging question
that arises here is how to punish unreasonably high duty evasions?
SUGGESTIONS
One of the ways of achieving this objective is by fixing such a duty based on the type of goods,
which must be considered only for the purpose of punishment after the assessment and its
finality at the level of the tribunal. The duty can be fixed according to the different categories of
goods such as necessity goods, luxury goods, raw materials etc. These different categories may
be treated differently. Also, the type of industry must be taken into account in order to classify
the goods into different categories. Since quantity of goods imported is also an important factor
for imposing a customs duty, it must be given the utmost importance while computing the duty
along with the categorisation of goods as mentioned above.
Special situations of imports such as import during the time of recession (or depression, as the
case may be) must be taken into account and the duties levied based on the suggestion pointed
out above should be flexible, based on reasonable considerations. Failure to pay a duty on time
must not be punished until and unless there are compelling reasons to do so. If the duty evasion
is unreasonably high even after the specific considerations as pointed out above, then such an
offence may be severely punished. The aforementioned suggestions may also be taken into
account in order to fix the market value of the goods imported. Fixing a value of one crore of
rupees for classifying such related offences as bailable/non- bailable is also unjust as already
stated earlier. The duty limit must be fixed as a percentage or ratio, which is reasonable.
Thus, it can be said that the following criterion must be taken in order to calculate the customs
duty as a percentage or ratio on imports for the purpose of punishment of heavy duty evadersi.
ii.
iii.
iv.

Type of goods based on different categories.

Type of industry.
Quantity of goods imported.
Economic situation at the time of import and also at the time of levy of duty.

In order to avoid ambiguities, it must also be made sufficiently clear by way of an amendment,
that an officer of customs33 must be a proper officer who has made the assessment for the
33 Section 104(1), The Customs Act, 1962.

given case. Also, an assessment must be made an important basis to form a reason to believe as
given in section 104 of the Customs Act, 1962. The proper officer in this case must have
completed the assessment and the assessment should be final before any prosecution can be
initiated against the assessee. Such amendments are a must in situations where duty evaders are
to be classified and evasion beyond a particular limit is to be severely punished.
CONCLUSION
Cases relating to duty evasions have been increasing in the recent past. The different forums such
as the appellate tribunals, the High Courts of different states as well as the Honble Supreme
Court of India are regularly engaged in the adjudication of such disputes between the revenue
department(s) and the assessee(s). The effect of the latest amendment is bound to increase the no.
of cases to be dealt by these forums and increase the scope of the revenue departments to punish
marginal/non- duty evaders in an unjust manner. The amendment has been brought with effect to
punish duty evasions which are unreasonably high. But the legislature seems to have brought
effect to this amendment in haste, without considering the consequences of such a law.
In the light of the expected impacts of the amendment to the Customs Act, 1962, by way of the
Finance Act 2013, it can, therefore, be said that the amendment is bad in law and must be
scrapped out from the statute. Severely punishing duty evasions which are very high is a
commendable objective of the legislature. But it must be done by taking into account some
important factors which are necessary and paramount to the computation of such a duty. The
limit of the duty must not be arbitrarily fixed for all goods. Even while computing the limit of
duty, it should be in the form of a percentage or ratio, which is reasonable. This method of fixing
the limit of customs duty would be reasonable and classify the duty evaders in a proper manner.
Also, the officer making an arrest must be guided by a reasonable belief on reasonable grounds
(in this case assessment) in order to achieve the objective of punishing duty evaders whose
liabilities are unreasonably high. Such changes can make the tax laws more balanced and
equitable.