2025 (6) TMI 552 - AT - Customs

Rejection of transaction values of the goods declared by the respondents - re-determination of the values - confiscation of goods seized and handed over to the respondents for safe custody but which subsequently went missing while in their custody - non-imposition of redemption fine with respect to all the rolls of fabrics which were lost while in the custody of the respondents and were not found during the joint inspection although they were actually seized and were found missing while in the custody of respondent. HELD THAT - Re-determination of the correct value of the goods confirmation of demand of the differential duty and confiscation of the goods under section 111 in the impugned order are not disputed. What is in dispute is when the goods were seized handed over the respondent for safe custody and they went missing while in their custody whether such goods can be confiscated or not. The Commissioner does not dispute that the goods were liable for confiscation. He did not confiscate the goods only to the extent that they were lost while in the custody of the respondents. This is not a case where the goods were not seized at all or where they were not available for seizure. The goods were seized and the Commissioner found that they were liable for confiscation. After the seizure of the goods and before the adjudication proceedings the goods were handed over to the respondents for safe custody. From their custody the goods went missing. The liability of the goods for confiscation does not get extinguished simply because the respondents had either diverted the goods or pilfered or were negligent to let the goods go missing from their custody. Sometimes after the goods are seized they are provisionally released to the importer with the condition that he would pay any redemption fine which may be imposed in lieu of the confiscation if they are confiscated. Even in this case the goods were left to the custody of the respondent and it was their responsibly to ensure that the goods were available till the completion of the adjudication proceedings. If the goods are confiscated they vest in the Central Government and the officer adjudging the confiscation shall take possession of the confiscated goods as per section 126 of the Act. Had the goods been not diverted or lost through the negligence while in the custody of respondents they would have been confiscated and they would have been vested in the Central Government. Since the goods were lost by the respondents they need to be pay a redemption fine in lieu of the goods. Both appeals are allowed and the impugned order is set aside to the extent that the rolls of fabrics seized by the department which went missing while in the custody of the department are held liable for confiscation and the respondent shall be liable for paying redemption fine in lieu of confiscation. The matter is remanded to Commissioner to determine the redemption fine and penalties accordingly. Appeal disposed off by way of remand.

Summary

The core legal questions considered by the Appellate Tribunal (AT) in this matter include:

1. Whether the goods seized and handed over to the respondents for safe custody, but which subsequently went missing while in their custody, can be confiscated under the Customs Act, 1962.

2. Whether the Commissioner was correct in not imposing redemption fine or confiscating those goods which were lost while in the respondents' custody.

3. The legal consequences and liabilities arising from the loss of seized goods while under the custody of the respondents.

4. The applicability and scope of Section 125 of the Customs Act, 1962 regarding the option to pay fine in lieu of confiscation in circumstances where goods are missing from custody.

Issue-wise Detailed Analysis

Issue 1: Confiscation of Goods Missing While in Custody

The relevant legal framework includes Section 111(d) of the Customs Act, 1962, which authorizes confiscation of goods liable under the Act, and Section 125 which provides an option to pay fine in lieu of confiscation. The Commissioner had confiscated only those goods physically available during joint inspection, but refrained from confiscating goods that went missing while in the respondents' custody.

The Tribunal noted that the goods were indeed seized and liable for confiscation at the time of seizure. The subsequent loss of goods while in respondents' custody does not extinguish liability for confiscation. The Court reasoned that the Commissioner's decision not to confiscate missing goods on the ground of unavailability was "perverse." The goods were seized and liable for confiscation under the Act; their disappearance due to diversion, pilferage, or negligence by the respondents does not absolve them of liability.

The Tribunal emphasized that seizure creates a legal relationship whereby the goods are under control of the department, and if provisionally released to respondents for safe custody, the responsibility to maintain availability rests with them. The loss of goods in their custody cannot be a shield against confiscation.

Issue 2: Imposition of Redemption Fine for Missing Goods

Section 125 of the Customs Act, 1962, was examined in detail. It allows the owner or person in possession of confiscable goods an option to pay a fine in lieu of confiscation. The Tribunal highlighted that the fine imposed cannot exceed the market price of the goods less duty payable.

The Tribunal observed that while the Commissioner imposed redemption fine on goods physically available, he did not impose any fine for the missing goods. The Court held that since the goods were lost due to the respondents' custody, they must pay redemption fine in lieu of confiscation. This aligns with the principle that confiscation vests ownership in the Central Government, and if goods are lost before formal confiscation, the respondents remain liable to compensate through redemption fine.

The Tribunal further noted that the respondents' responsibility to safeguard the goods continued until adjudication was complete. The loss of goods due to respondents' negligence or diversion triggers liability for redemption fine, ensuring the government's interest is protected.

Issue 3: Re-determination of Value and Confirmation of Duty Demand

This issue was not disputed before the Tribunal. The Commissioner had re-determined the transaction value of the goods based on investigation findings that the respondents had undervalued imports by obtaining invoices for about one-third of actual price. The Tribunal confirmed the correctness of re-determination of assessable value, demand of differential customs duty, and confiscation of goods under Section 111(d).

The investigation revealed that the respondents negotiated prices directly with manufacturers at US$3 to US$3.5 per meter, but obtained invoices from traders showing only US$1 per meter, thereby evading customs duty. This factual finding underpinned the legal determination of undervaluation and consequent duty demand.

Issue 4: Treatment of Competing Arguments and Procedural Aspects

The respondents did not contest the re-determination of value or confiscation of available goods but implicitly challenged the confiscation and redemption fine liability for missing goods. The Commissioner's order reflected a cautious approach by not confiscating or imposing redemption fine on missing goods due to their unavailability.

The Tribunal rejected this reasoning, emphasizing that the liability for confiscation is not negated by physical absence of goods if they were seized and lost in respondents' custody. The Tribunal remanded the matter for fresh determination of redemption fine and penalties on the missing goods.

Significant Holdings

The Tribunal held verbatim that the Commissioner's decision "not to confiscate the goods only to the extent that they were lost while in the custody of the respondents" was "perverse." It stated:

"If the goods are seized they can be confiscated or released. The Commissioner does not dispute that the goods were liable for confiscation. He did not confiscate the goods only to the extent that they were lost while in the custody of the respondents. This is not a case where the goods were not seized at all or where they were not available for seizure. The goods were seized and the Commissioner found that they were liable for confiscation. After the seizure of the goods and before the adjudication proceedings, the goods were handed over to the respondents for safe custody. From their custody the goods went missing. The liability of the goods for confiscation does not get extinguished simply because the respondents had either diverted the goods or pilfered or were negligent to let the goods go missing from their custody."

Further, the Tribunal articulated the principle that the respondents remain liable to pay redemption fine in lieu of confiscation for goods lost under their custody, stating:

"Since the goods were lost by the respondents, they need to pay a redemption fine in lieu of the goods."

The Tribunal's final determination was to allow the appeals filed by the Revenue, set aside the impugned order to the extent it did not confiscate missing goods or impose redemption fine, and remand the matter to the Commissioner for determination of redemption fine and penalties accordingly.

Core Principles Established

- Seized goods liable for confiscation remain so even if lost while in the custody of the person to whom they were provisionally released for safe custody.

- The liability for confiscation does not extinguish due to loss, diversion, or negligence causing disappearance of goods after seizure.

- Redemption fine under Section 125 of the Customs Act is payable in lieu of confiscation for goods lost while in custody, ensuring government's interest is protected.

- The responsibility to safeguard seized goods provisionally released rests with the respondents until completion of adjudication proceedings.

- The Commissioner's discretion to confiscate or impose redemption fine must be exercised in accordance with these principles, and failure to do so is subject to appellate correction.