Confiscation of India-made goods with imported components must be confined to the offending parts, not the whole machine.

A bona fide purchaser of India-made machines containing imported offending components was not exposed to automatic confiscation of the finished goods where the purchaser had no knowledge of the original breach and the offending material was only part of the machines. Confiscation could not be mechanically extended to the whole unit without a reliable basis for valuing the offending component actually used. On the same facts, redemption fine could not be fixed by reference to the finished machines or an unproved import value; it had to be confined to the offending components and supported by proper valuation. The fine was therefore treated as excessive and reduced to a nominal amount.

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Issues: (i) Whether two FPUs manufactured in India from imported spares could be confiscated in the hands of a bona fide purchaser who had no knowledge of the breach of the exemption conditions; (ii) Whether the redemption fine imposed on the appellant for those two FPUs was justified.

Issue (i): Whether two FPUs manufactured in India from imported spares could be confiscated in the hands of a bona fide purchaser who had no knowledge of the breach of the exemption conditions.

Analysis: The imported spares had been used to manufacture FPUs in India, and the appellant purchased the finished machines without knowledge of the breach committed by the importer. The liability to confiscation may extend to goods in the hands of third parties, and mens rea is not essential to confiscation of offending goods. However, where the purchaser is bona fide and the offending material is only part of the finished goods, confiscation cannot be mechanically applied to the whole machine without determining the value of the offending component actually used. On the facts, the confiscation of the two complete FPUs was not supported by the material.

Conclusion: The two complete FPUs were not liable to be confiscated as such in the appellant's hands.

Issue (ii): Whether the redemption fine imposed on the appellant for those two FPUs was justified.

Analysis: The machines were not imported FPUs but India-made units containing imported spares and indigenous parts. No reliable basis was shown for adopting the value of imported FPUs or for fixing the fine with reference to the finished machines, particularly when the value of the actual offending spares was not ascertained and those spares had depreciated over time. In the peculiar facts, only a nominal amount could be justified.

Conclusion: The redemption fine was excessive and was reduced to a token fine of Re. 1 for each machine.

Final Conclusion: The appellant succeeded only to the extent of substantial reduction of the redemption fine, resulting in a nominal total fine of Rs. 2.

Ratio Decidendi: Where a bona fide purchaser acquires India-made goods containing only offending imported components, confiscation and redemption fine must be confined to the offending components and cannot be mechanically imposed on the finished goods without a reliable valuation basis.

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