2024 (7) TMI 1221 - SC - Customs

Customs duty liability arises when confiscated goods redeemed after fine payment under Section 125

M/s NAVAYUGA ENGINEERING CO. LTD. Versus UNION OF INDIA & ANR.

The SC held that when confiscated goods are redeemed after payment of fine under Section 125 of the Customs Act, 1962, customs duty liability arises as a ... Liability to pay customs duty when the confiscated goods are redeemed after payment of fine under Section 125 of the Customs Act, 1962 - liability to pay such duty will include the liability to pay interest on delayed payment under Section 28AB of the Act otr not - applicability of ratio of the decision in the Jagdish Cancer case [2001 (8) TMI 113 - SUPREME COURT]. Whether there is a liability to pay customs duty when confiscated goods are redeemed after payment of fine under Section 125 of the Act? - HELD THAT:- This issue is no more res integra. The uncertainty about the liability to impose and collect duties in confiscation proceedings was resolved in 1976 by a decision of this court in Union of India v. M/s Security and Finance (P) Ltd. [1975 (10) TMI 30 - SUPREME COURT], hereinafter referred to as Security Finance case, while interpreting identical provisions, as they stood under the Sea Customs Act, 1878. In this case, the court was dealing with confiscation of goods that were imported without a proper license which was and is prohibited by law. Though the goods were confiscated, they were released to the importer, who exercised the option to redeem them under Section 183 of the repealed Act. Consequently, Customs Department sought to collect the duty payable on such goods. The High Court accepted the importer’s challenge to imposition and collection of duty on the ground that Section 183 proceedings authorised only a fine and not customs duty. The customs duty obligation on once exempted goods, liable to be confiscated for violation of conditions, arises only after the option to redeem them is exercised under Section 125. Once the option is exercised, the acceptance is subject to the conditions specified in Section 125. The primary condition is payment of fine in lieu of confiscation. Thus, this duty obligation is inextricably connected to the option to redeem the confiscated goods. In other words, it is a precondition for redemption. The decision of this court in Fortis Hospital Ltd v. Commr. of Customs, Import [2015 (4) TMI 348 - SUPREME COURT] affirms this position. In Fortis Hospital case, the owner of the confiscated goods chose not to exercise the option under Section 125. However, the revenue sought to recover the duty payable under Section 28 of the Act. In this was ruled that 'this is impermissible'. We conclude by holding that Jagdish Cancer case is not an authority for the proposition that when the liability to pay customs duty has occasioned under Section 125, the calculation, determination or the assessment of such duty cannot be made under Section 28. The customs duty obligation in confiscation proceedings does not occasion either under Section 12 or 28. It has arisen because of the option available and exercised under Section 125. This obligation should not be confused with the method and procedure by which that customs duty is assessed and determined, which is provided under Section 28. It is in this context that it is needed to consider and explain the decision of this court in Jagdish Cancer case [2001 (8) TMI 113 - SUPREME COURT]. The Jagdish Cancer case is not an authority for the proposition that when the liability to pay customs duty has occasioned under Section 125, the calculation, determination or the assessment of such duty cannot be made under Section 28. Whether the liability to pay such duty will include the liability to pay interest on delayed payment under Section 28AB of the Act? - HELD THAT:- The text of Section 125(2) clearly provides that, where any fine in lieu of confiscation of goods is imposed under sub-Section (1), the owner of such goods shall be ‘liable to any duty and charges payable with respect to such goods’. The sub-section provides that the liability to any duty and charges, that are payable, shall be paid in addition to the fine - It is held that Section 28 would come into operation for assessing and determining the duty and other charges payable with respect to goods redeemed under Section 125(2). Once Section 28 applies for determination of duty obligation arising under Section 125(2), the interest on delayed payment of duty arises under Section 28AB. The said provision obligates payment of interest in addition to the duty - the interest liability under Section 28 AB is also attracted. The decision of the High Court upheld - appeal disposed off. Issues Involved:1. Liability to pay customs duty when confiscated goods are redeemed after payment of fine under Section 125 of the Customs Act, 1962.2. Liability to pay interest on delayed payment under Section 28AB of the Customs Act, 1962.3. True and correct ratio of the decision in Jagdish Cancer case.Issue-wise Detailed Analysis:1. Liability to Pay Customs Duty When Confiscated Goods Are Redeemed After Payment of Fine under Section 125 of the Act:The Supreme Court affirmed that the owner of goods has a liability to pay customs duty even after confiscated goods are redeemed by paying a fine under Section 125 of the Customs Act, 1962. This principle was established in the Security Finance case (1976) where the court distinguished between the power to impose or recover duty under Section 20 (now Section 12/28) and the power to impose penalty and/or fine under Section 183 (now Section 125). The judgment clarified that the duty liability arising under Section 125(2) must be assessed under Section 28.The Court noted that the customs duty obligation on once-exempted goods, liable to be confiscated for violation of conditions, arises only after the option to redeem them is exercised under Section 125. This was further affirmed in the Fortis Hospital case (2015), where it was held that the duty becomes payable only when the option to pay the fine and redeem the confiscated goods is exercised.Thus, the court concluded that the obligation to pay customs duty in confiscation proceedings under Section 125(2) is distinct from the assessment and determination of duty, which can arise only under Section 28.2. Liability to Pay Interest on Delayed Payment under Section 28AB of the Act:The Court held that once Section 28 applies for the determination of duty obligation arising under Section 125(2), the interest on delayed payment of duty under Section 28AB follows. The text of Section 125(2) clearly provides that the owner of goods shall be 'liable to any duty and charges payable with respect to such goods' in addition to the fine. As Section 28 is used for assessing and determining the duty and other charges payable, the interest liability under Section 28AB is also attracted.3. True and Correct Ratio of the Decision in Jagdish Cancer Case:The Court clarified that the Jagdish Cancer case is not an authority for the proposition that when the liability to pay customs duty arises under Section 125(2), the calculation, determination, or assessment of such duty cannot be made under Section 28. The Jagdish Cancer case held that the liability to pay customs duty in confiscation proceedings arises under Section 125(2) and does not require a separate notice under Section 28. However, this does not preclude the use of Section 28 for the assessment and determination of such duty.Conclusion:The Supreme Court upheld the High Court's decision, affirming that the owner of goods has a liability to pay customs duty and interest on delayed payment when confiscated goods are redeemed after payment of fine under Section 125 of the Customs Act, 1962. The court clarified that the duty liability arising under Section 125(2) must be assessed under Section 28, and interest on delayed payment of duty under Section 28AB is applicable. The decision in the Jagdish Cancer case was explained to support this interpretation. The Civil Appeal was disposed of with no order as to costs.