2025 (10) TMI 742 - AT - Customs

Appeal allowed for ex parte disposal of seized gold violating natural justice; refund with interest ordered, redemption fine upheld

CESTAT allowed the appellant's appeal, setting aside the Commissioner's order, holding the department acted improperly by sending seized gold to the Mint ... Absolute confiscation of Gold and disposal of the same without any information to the appellant (importer) - Right to pay redemption fine in lieu of confiscation - Prescribed procedure followed by the officers of the department during confiscation of gold, keeping it in their custody and returning the value of gold to the appellant after deducting dues or not - HELD THAT:- It was not proper on the part of the department to have sent the gold seized from the appellant to Mint without informing him. In this context, it is pertinent to refer to the order passed in Satish Mehta and Dhanishtha Gold vs C. C. Ahmedabad [2022 (11) TMI 62 - CESTAT AHMEDABAD]. The Tribunal has held in this case that during the disputed period when the matter was sub-judice before the Tribunal, the Department, in a hasty manner disposed off the goods without seeking permission from the Appellate Court where the matter was sub-judice. Thus, the department has committed a serious mistake by disposal of the disputed goods which was a subject matter of appeal. The department also did not intimate the appellants regarding the disposal of confiscated goods. This act of the department exparte cannot be held as proper and legal. The Tribunal cited Kailash Ribbon Factory Ltd vs. Commissioner of Customs and Central Excise New Delhi [2002 (3) TMI 57 - HIGH COURT OF DELHI]sion of the Tribunal during pendency of the appeal without even giving notice to the appellant. It was also held that the department has to refund the declared value of the goods with interest per annum from the date of auction of the goods. The Tribunal has also held in the above mentioned decided case that at the time when the goods were disposed off the department was well aware about the pendency of the appeal before this Tribunal. Therefore, the action of the department is clearly in gross violation of principles of natural justice. Hence the same cannot be allowed to sustain. In this case, the Tribunal allowed the appeal and held appellant entitled for the refund of differential value of the gold as claimed by them along with interest. The Revenue is justified in deducting the redemption fine of Rs. 4,25,000/- imposed by the Revisional Authority vide order dated 24th August, 2022 because on the basis of that order, the appellant is claiming gold in question. The appellant cannot be allowed to take benefit of that order and at the same time refuse to accept the onerous part of the same order. In the present case the gold in question was confiscated. Therefore, if the appellant to take the gold in question back or its market value, he is bound to pay the redemption fine. The learned Commissioner has erred in upholding the order of the first Adjudicating Authority and rejecting the appeal. In my opinion the impugned order passed by the learned Commissioner in liable to be set aside and the appeal deserves to be allowed. The impugned order passed by the learned Commissioner is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the department complied with the statutory procedure under Section 110(1B) of the Customs Act, 1962 prior to disposal/melting of seized gold. 2. Whether disposal/melting of seized gold by the department without informing the owner and while appellate/revisional remedies were pending violates principles of natural justice and requires remedy in the form of refund on market value. 3. What is the proper basis for computing the amount payable to an owner where seized gold has been disposed of/transferred to SPMCIL: tariff value on date of transfer to SPMCIL (for Customs area seizures) as per Instruction No.22/2022 or market value on some other date; and the interplay of Section 125(2) with Instruction No.22/2022. 4. Whether redemption fine imposed by a revisional authority is deductible from the amount refunded where the gold has already been disposed of, particularly when the order of redemption envisaged release of goods on payment. 5. Whether other deductions (customs duty including SWS, penalty, warehouse charges) and additions (pre-deposit) were correctly effected in computing the refundable amount after disposal of seized gold. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Compliance with Section 110(1B) before disposal/melting of seized gold Legal framework: Section 110(1B) requires a proper officer who has seized goods specified under sub-section (1A) to prepare an inventory containing particulars relevant to identity of the goods and to make an application to a Magistrate; statutory safeguards exist for preservation and identification of seized valuable goods. Precedent treatment: Decisions referenced in the judgment (including Tribunal and High Court authorities cited) treat disposal of seized gold without following requisite procedures as a serious lapse and a violation of statutory duty and natural justice. Interpretation and reasoning: The Tribunal held that it was not proper for the department to send seized gold to the Mint without informing the owner and without following the prescribed safeguards; disposal while remedies were pending and without notice undermines the protective regime of Section 110(1B) and related safeguards. Ratio vs. Obiter: Ratio - disposal/melting of seized gold without following statutory inventory/notice procedure under Section 110(1B) and without informing the owner is improper and constitutes a ground for relief. Obiter - factual comments on departmental conduct and moral obligation to inform appellate forums. Conclusion: The department erred in disposing of the gold without observing the statutory procedure and without informing the appellant; this constituted a breach warranting remedial direction. Issue 2 - Violation of principles of natural justice by disposing gold during pendency of appeals/revisions Legal framework: Principles of natural justice (fairness, reasoned procedure) and Article 14 reasoning invoked by precedent require transparency and notice before depriving an owner of property or disposing it while proceedings are sub judice. Precedent treatment: The Tribunal relied on earlier Tribunal and High Court decisions (as discussed in the order) that condemned disposal/auction/melting of goods while appeal was pending without notice to the owner or permission from the appellate forum; such actions entail restitutionary remedies. Interpretation and reasoning: The Tribunal found departmental action to be a 'serious mistake' and 'gross violation of principles of natural justice' where goods were disposed of despite pendency of appeal and without intimating the appellant; consistent authorities require refund of value with interest where goods are sold/disposed ex parte. Ratio vs. Obiter: Ratio - disposal of seized goods without informing owner and during pendency of appellate remedies violates natural justice and entitles owner to equitable restitution (refund of value). Obiter - rhetorical emphasis on reasonableness, fairness and transparency expected of customs officers. Conclusion: Disposal without notice while matters were sub judice was contrary to law and justified directing payment of value to the owner. Issue 3 - Proper basis for valuation where seized gold has been transferred to SPMCIL; application of Instruction No.22/2022 and Section 125(2) Legal framework: Instruction No.22/2022-Customs (6.9.2022) prescribes that when seized gold is to be refunded but has been disposed off/transferred to SPMCIL, the refund calculation shall be: (i) for seizures in Customs area - based on Tariff Value of gold on date of transfer to SPMCIL; (ii) for seizures outside Customs area - based on average market price on date of transfer to SPMCIL. Section 125(2) and the revisional/order framework also govern refunds and deductions. Precedent treatment: The Tribunal noted decisions that have awarded market value as remedy where department disposed goods during pendency, including directions to refund market value prevailing 'today' in some High Court orders cited by the Tribunal; these authorities have sometimes refused departmental deductions such as duty where specific facts warranted the same. Interpretation and reasoning: The Tribunal accepted that Instruction No.22/2022 binds the department for computing refund where gold has been transferred to SPMCIL. However, on facts the Tribunal disagreed with the Commissioner's acceptance of Adjudicating Authority's table as compliant, finding that established authorities require refund of market value as on date of payment/handing over in circumstances where disposal occurred without informing owner and while appeals were pending. Ratio vs. Obiter: Ratio - where department disposes of seized gold improperly (without notice/during pendency), equitable restitution in the form of payment of market value as on date of payment/handing over is appropriate notwithstanding the Instruction's tariff/transfer-date formula; the Instruction remains a binding administrative guideline but must be read in context of breach. Obiter - commentary on interplay of Instruction with Section 125(2). Conclusion: The Tribunal directed payment of market value effective on the date the cheque was handed over to the appellant, after specified adjustments; Instruction No.22/2022 applies to valuation generally but the Tribunal awarded market-value restitution in the circumstances of improper disposal. Issue 4 - Deductibility of redemption fine when goods were not available at time of redemption Legal framework: Redemption fine is an instrument imposed by a revisional authority to allow a party to reclaim confiscated goods on payment; the legal position varies by factual context and precedents concerning whether fine is payable where goods are not liable to confiscation or are unavailable. Precedent treatment: The appellant relied on authorities holding redemption fine should not be imposed when goods are not liable to confiscation; the Tribunal noted these lines of authority but applied reasoning based on the specific revisional order that granted redemption subject to fine. Interpretation and reasoning: The Tribunal held that the revisional authority's order imposed a redemption fine as an integral part of the order under which the appellant claimed the gold or its value; the appellant could not accept the benefits of that order and repudiate its onerous condition. Given the gold had been confiscated, the Tribunal found deduction of redemption fine justified. Ratio vs. Obiter: Ratio - where a revisional order conditions redemption on payment of a redemption fine and the owner claims the gold/value under that order, the redemption fine can be deducted even if the goods are not physically available at the time of redemption, unless the order itself is shown to be contrary to law. Obiter - references to contrary authorities where fines were held inapplicable in different factual matrices. Conclusion: Deduction of the redemption fine of Rs.4,25,000/- was held to be justified on the facts because the appellant sought relief under the revisional order that contained the redemption fine condition. Issue 5 - Legitimacy of other deductions and computation of refund (duty, penalty, warehouse charges, pre-deposit) Legal framework: Deductions from proceeds of sale or refund generally include customs duty, penalty if upheld, reasonable warehousing charges, and adjustments for pre-deposit; calculations should conform to statutory provisions and applicable administrative instructions. Precedent treatment: Tribunal and High Court authorities require transparent, lawful computation and have ordered restitution with interest where departmental sale/disposal was improper; deductions may be permitted if legally enforceable and supported by orders. Interpretation and reasoning: The Tribunal found that customs duty, penalty (as upheld by revisional authority), warehouse charges and the credited pre-deposit could be adjusted, but stressed that the overall computation must reflect the market value direction adopted by the Tribunal (market value as on date of cheque). The Tribunal disagreed with the Commissioner's blanket approval of Table no.4 and instead directed payment of market value after adjustment/deductions as shown in Table-3 of the Order-in-Original. Ratio vs. Obiter: Ratio - lawful and enforceable dues (duty, penalties upheld, redemption fine, warehouse charges) may be adjusted against the market-value refund; the computation must be transparent and aligned with the remedial principle applied. Obiter - specific numerical tabulation discussion and comparison with Table no.4. Conclusion: The Tribunal allowed the appeal, set aside the Commissioner's order, and directed payment of the market value of the gold as effective on the date the cheque was handed over, after adjustment/deduction of redemption fine, penalty, warehouse charges, applicable duty and credit for pre-deposit - i.e., payment as per the adjusted computation (Table-3) with the department's earlier method (Table-4) rejected as non-compliant in the circumstances.