TaxTMI 
TaxTMI 
2006 (4) TMI 137
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....d goods cleared without payment of duty under a conditional exemption notification are confiscated with an option to pay fine in lieu of confiscation and if the option is not exercised by the owner, whether the revenue is entitled to recover customs duty payable on such goods? The Tribunal held that on confiscation, the goods vest in the government and the liability to pay duty under Section 125(2) of the Customs Act, 1962 would arise only if the owner opts to redeem the goods by paying the redemption fine. As the owners in these two cases have not opted to redeem the goods, the Tribunal held that the customs duty is not payable. Challenging the aforesaid orders, the revenue has filed these appeals. 3.Undisputed facts in Customs Appeal No. 22 of 2004 are that M/s. Wockhardt Hospital and Heart Institute ('Institute' for short) runs a hospital at Bangalore. Some time in the year 1990, the Institute imported a Cardiac Catherization Laboratory (known as Angiography system) with its spares/accessories valued at Rs. 1,14,23,471/- and sought duty free clearance under Notification No. 64-88-Cus., dated 1-3-1988. 4.Notification No. 64/88-Cus., dated 1-3-1988 issued under Secti....
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.... of the Customs Act, 1962. 7.Being aggrieved by the aforesaid order, the Institute filed an appeal before the Tribunal. By the impugned order dated 13-2-2004, the Tribunal while upholding the confiscation and penalty, held that the duty demand cannot be sustained as the Institute has not exercised the option of redeeming the confiscated goods. Hence, this appeal. 8.In Customs Appeal No. 17 of 2005, M/s. Poona Medical Foundation, Pune, now Grant Medical Foundation ('Foundation' for short) had during the period from January, 1988 to February, 1994 imported medical equipments collectively valued at Rs. 3,28,80,008/- and cleared the same without payment of duty under the conditional exemption Notification No. 64/88-Cus. by furnishing requisite certificate from the DGHS. 9.By a show cause notice dated 13-12-2000 issued under Section 124 of the Customs Act, the Assistant Commissioner of Customs, Mumbai called upon the Foundation to show cause as to why the medical equipments cleared without payment of duty should not be confiscated under Section 111(o) of the Customs Act, 1962 for violating the conditions of Notification No. 64/88-Cus. The Foundation was further called u....
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....f 2005 was admitted on 8-9-2005 on the following substantial questions of law : (1) Whether in the facts and circumstances of the case the importer is liable to pay customs duty irrespective of the fact that it may not redeem the goods confiscated several years after their use ? (2) whether the importers are liable to pay duty which has arisen nor merely because the goods have been confiscated but also because the conditions of the notification have been violated ? (3) Whether in the facts and circumstances of the case the importer can escape from payment of customs duty which arose due to the violation of post import conditions simply by declining to redeem the goods after they have utilized them for their full life ? 13.Mr. Pakale, learned Counsel appearing on behalf of the revenue submitted that under Section 12 of the Customs Act which is a charging section, duties of customs are leviable on all goods which are imported into India. Although the taxable event occurs the moment goods enter the territorial waters of India, it is open to the government to collect the duties of customs leviable under Section 12 at any stage without disturbing the essenc....
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.... entitled to enforce realisation of the customs duty from the owner. 16.Mr. Pakale further submitted that under Section 125(2) of the Customs Act, the liability to pay customs duty in addition to the redemption fine is an independent provision and, therefore, even if the owner declines to redeem the confiscated goods the liability to pay customs duty on the confiscated goods continues. In this connection, Mr. Pakale relied upon the decision of the Apex Court in the case of Union of India v. Security & Finance (P) Ltd. (A.I.R. 1 1975 S.C. 2288) and the decision of the Delhi High Court in the case of Punjab Dairy Development Corporation Ltd. v. Union of India reported in 1987 (30) E.L.T. 241 (Delhi). Accordingly, Mr. Pakale submitted that the Tribunal was in error in holding that even after committing breach of the conditions of the notification the owners are not liable to pay customs duty on the ground that the owners have not opted to redeem the goods. 17.Mr. Bharucha, learned Senior Counsel appearing on behalf of the institute submitted that in the instant case, the show cause notice issued on 12-1-2000 did not seek to recover duty but sought to confiscate the goods and to ....
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....iscation is given. 21.Mr. Bharucha submitted that if it is held that the liability to pay duty under Section 125(2) arises, the moment an order is made with an option to pay fine in lieu of confiscation even if the option is not exercised, then, it would lead to palpably absurd results. For example, Mr. Bharucha submits, that where noxious drugs like Cocaine or Heroin are imported, the same being prohibited are liable to be confiscated absolutely and such goods cannot be released on payment of fine. Thus, owner of absolutely confiscated goods will not be liable to pay duty under Section 125(2). On the other hand, if the goods imported are not per se noxious but are subject to restrictions, like import of special categories of steel, then, such goods are liable to be released on payment of fine in lieu of confiscation. If the contention of the revenue is accepted, the owner whose goods are confiscated absolutely would not be liable to pay duty, whereas, the owner whose goods are confiscated with an option to pay fine in lieu of confiscation would be liable to pay duty, even if the option is not exercised and the goods continue to remain as confiscated goods. He submits that if....
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.... the Customs Act nugatory. He submitted that it is well established in law that while interpreting a statute, effort should be made to give effect to each and every word used by the legislature. Relying upon the Judgment of the Apex Court in the case of Nathidevi v. Radha Gupta reported in (2005) 2 S.C.C. 271, Mr. Bharucha submitted that a construction which attributes redundancy to the words in the statute cannot be accepted. In the present case, the interpretation given to Section 12 by the revenue if accepted, it will render Sections 28 and 125(2) completely nugatory and, therefore, such a construction must be avoided. 25.Mr. Bharucha submitted that Section 12 provides for levy of customs duty on import of goods and not on the owner or the importer. Under Section 126 of the Customs Act on confiscation the property in goods vest in the Central Government. In such a case, claiming duty under Section 12 on the goods which are vested in the Central Government does not arise at all. This is because the taxable event in terms of Section 12 is the import into or export of goods from India. 26.Dealing with the decision of the Apex Court in the case of Mediwell Hospital (supra), Mr....
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.... the question which was not necessary to decide the case would be only an obiter dictum." Accordingly, Mr. Bharucha submitted that assuming that the decision in the case of Mediwell Hospital (supra) still holds the field, even then the passing observations made in the said decision are not binding on this Court. 28.Mr. Bharucha further submitted that the Apex Court in the case of Jagdish Cancer & Research Centre (supra) did not address itself to the issue as to whether the duty is payable even if an option of redemption is not exercised. He submitted that the issue before the Apex Court in that case, was regarding the applicability of Section 28 in respect of the goods confiscated under Section 111 and 112 of the Customs Act. He submitted that the duty in respect of goods confiscated under Sections 111 & 112 can be recovered under Section 125(2), only if the owner exercises the option to redeem the goods. On exercising the option to redeem the goods, the owner becomes liable to pay the duty thereon in addition to fine in lieu of confiscation. Such a duty is an integral part of the process of confiscation and for recovering that duty the limitation prescribed under Section 28 ....
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....on of the revenue that duty shall be payable under Section 125 irrespective of the exercise of option to redeem the goods on payment of fine in lieu of confiscation is accepted, then the term 'in addition to' in Section 125(2) would be rendered redundant and otiose. He submitted that if the option to redeem the goods is not exercised, then, the goods remain confiscated and in that event whole of Section 125(2) would be inapplicable. 32.According to Mr. Shreedharan, the expression 'shall be liable' in Section 125(2) does not refer to absolute obligation. The word 'liable' in Section 125(2) indicates that there is a possibility of attracting obligation to pay duty. Such possibility will occur or happen if the goods are being redeemed. Thus, the word 'vliable' in Section 125(2) is decisive of the matter as it establishes that if the goods are not redeemed, possibility of payment of duty does not arise at all. He submitted that under Section 125(2) it is not the importer but only the owner or the person in possession of the goods is liable to duty conclusively establishes that the liability to pay duty in terms of Section 125(2) will arise only if the....
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.... if the duty is leviable due to non fulfilment of the conditions required to be fulfilled after clearance, if there is no machinery for collection or assessment, then such levy is unenforceable. In this connection, he relied upon the decisions in the case of Elphinstone Spinning and Weaving Mills Co. Ltd. v. C.I.T. reported in 1955 (28) I.T.R. 811 (Bom), N.A. Mody v. C.I.T. reported in A.I.R. 1967 S.C. 193, Puri Municipal Council and Ors. v. India Tobacco Co. Ltd. reported in (1996) 1 Supreme Court 293 and Kolhapur Canesugar Works Ltd. v. Union of India reported in 2000 (119) E.L.T. 257 (S.C.). 36. Lastly, Mr. Shreedharan submitted that though several grounds were taken in the appeal the Tribunal decided the appeal on only one issue and if the Court disagrees with the view of the Tribunal, then the appeal be restored to the file of the Tribunal so that the matter can be heard on other grounds raised in the appeal filed by the assessee before the Tribunal. 37. We have carefully considered the submissions made by the Counsel on both the sides. - 38. Before dealing with the merits of the case, we may refer to the relevant provisions of the Customs Act which read thus :- " ....
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....ter referred to as 'owners') had imported medical equipments which were dutiable. However, on assessment the medical equipments were allowed clearance without payment of customs duty under Notification No. 64/88 with an obligation to fulfil the conditions attached to the said Notification after clearance of the goods. It is an admitted fact that, but for the exemption notification, the duty liability on the imported goods were Rs. 1,65,24,050/- and Rs. 4,40,31,340/- respectively. As per the notification, the obligations the owners had to fulfill after clearance of the goods were inter alia that they - (a) shall give free treatment on an average to at least 40% of the their Outdoor patients, (b) shall give free treatment to all Indoor patients belonging to families with a income of less than Rs. 500/- p.m., and (c) shall keep for that purpose at least 10% of the hospital beds reserved for such patients. It is not in dispute that in the present case, the above post clearance conditions of the Notification No. 64/88 have not been fulfilled. As a result, the owners have not earned the benefit of the exemption Notification and consequently the duty ....
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....er would have to pay duty even if the option to redeem the goods is not exercised. The submission is that, where the option to redeem the goods is not exercised the goods vest in the government, in such a case if Section 125(2) is read literally, then the absurd situation would be that though the goods have vested in the government the owner has to pay duty on such goods. 43. There is no merit in the above contention. What Section 125(2) contemplates is that, where fine in lieu of confiscation is imposed, the owner of such goods or the person referred to in Section 125(1) shall also pay duty and charges payable on such goods. It must be noted that it is the imposition of fine and not the payability of the fine that is relevant for the purposes of Section 125(2). No doubt, the fine imposed under Section 125(1) becomes payable only if the option of redemption is exercised. However, the legislature has provided in Section 125(2) that it is on imposition of fine under Section 125(1) the duty and charges payable on such goods has to be paid. Therefore, irrespective of the fact that the fine in lieu of confiscation has become payable or not, on imposition of fine in lieu of confiscati....
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....n of redeeming the goods. In such cases, duty becomes payable on imposition of fine in lieu of confiscation and the same has to be paid on passing an order under Section 125(1). In such cases fine may not be payable on imposition of fine, however, duty has to be paid on passing an order under Section 125(1). It is pertinent to note that the duty on the imported goods has to be paid by the importer before seeking clearance of the goods under Section 47. However, Section 125(2) provides that the duty and charges payable on goods confiscated with an option to redeem the same on payment of fine in lieu of confiscation imposed under Section 125(1), has to be paid by the owner or the person referred to in Section 125(1) . This differentiation clearly shows that Section 125(2) has been enacted to enforce the duties recoverable after the clearance of the goods. Once the goods are cleared from the customs control, the goods may change hands and, therefore, the legislature in such cases has thought it fit to recover the duty payable after the clearance of the goods from the owner or the person referred to in Section 125(1) of the Customs Act. 46. It is pertinent to note that neither the c....
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....l (supra), the Apex Court inter alia held thus:- "Needless to mention the Government has granted exemption from payment of customs duty with the sole object that 40% of all outdoor patients and entire indoor patients of the low income group whose income is less than Rs. 500/- p.m. would be able to receive free treatment in the Institute. That object must be achieved at any cost, and the very authority who have granted such certificate of exemption would ensure that the obligation imposed on the persons availing of the exemption notification are being duly carried out and on being satisfied that the said obligations have not been discharged they can enforce realisation of the customs duty from them." Similarly in the case of Jagdish Cancer & Research Institute, the Apex Court inter alia held thus :- "Whenever an order confiscating the imported goods is passed, an option, as provided under sub-section (1) of Section 125 of the Customs Act, is to be given to the person to pay fine in lieu of the confiscation and on such an order being passed according to sub-section (2) of Section 125, the person "shall in addition be liable to any duty and charges payable in resp....
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....ng the goods, then the Customs Act does not create any liability to pay the customs duty is only a prima facie observation made in the context of an issue relating to pre-deposit. Therefore, it cannot be said that in the aforesaid case, this Court has held that in each and every case, if the owner declines to exercise the option of redeeming the goods, the customs duty would not be payable. 51. It is true that the Tribunal in several cases has held that the duty is not payable under Section 125(2) if the option of redemption is not exercised. However, our view, it is not a correct interpretation. It was contended that the show cause notice issued in Customs Appeal No. 17 of 2005 did not seek to recover duty and, therefore, the duty demand cannot be sustained. As stated earlier, where the liability to pay duty is consequential to confiscation then on confiscation if the goods are permitted to be redeemed by imposing fine, then on such imposition of fine duty becomes payable. Therefore, the fact that the duty was not specifically demanded in the notice would not matter. The contention that where the option is not exercised, the goods remain vested in the government and in that eve....