2025 (6) TMI 1281 - AT - Customs

Eligibility for exemption under Customs Notification Nos. 11/1997 23/1998 and 20/1999 which apply only to DC defibrillators for internal use and pacemakers - mis-declaration or suppression of facts or not - time limitation - Penalty u/s 112(a) of the Customs Act 1962. HELD THAT - The issue on merits with regard to eligibility of exemption Notification stands settled by the Hon ble Supreme Court in the appellant s own case B.P.L. LTD. Versus Commr. of C.EX. Cochin-II 2015 (5) TMI 248 - SUPREME COURT where it was held that the appellant s Defibrillators did not qualify for exemption under Notification No. 8/96 and Notification No. 4/97. Thus in view of the above decision of the Hon ble Supreme Court the appellant is not eligible for the benefit of Notification for both defibrillators and their parts. Time limitation - It is argued that it is a question of interpretation of the Notification and since one of the Members of the Tribunal had held that they are eligible for the benefit of Notification the benefit of doubt should be given to the appellant and therefore suppression could not be alleged against them - HELD THAT - The period of dispute in both the appeals Customs Appeal No. C/355/2003 and Appeal No. C/21182/2017 is for the imports from 1997-1999 and 2002 respectively. As seen from the above order of the Hon ble Supreme Court the appellant was very well aware of the fact that the product which is basically a defibrillator for external use but capable of using during open heart surgery if the optional accessory of internal defibrillators paddles are also provided cannot be treated as defibrillators for internal use as contemplated in the exemption provisions. Taking into consideration the fact that the appellant was aware that these components imported by them were not meant for internal use continued to declare in their Bills of Entry that they are meant for internal use inspite of the fact that at the time end-use the benefit of Notification was being denied to them. The Commissioner in the impugned order notes that the appellant had furnished undertaking from time-to-time for furnishing the end-use certificates and failed to produce the same nor availed any extension of time. It is also noted by the Commissioner that the appellant was very well aware of the fact that the Central Excise Authorities on investigation had issued the notice denying the benefit of the Notification and the appellant knew that they could not have obtained end-use certificates from the jurisdictional Central Excise Authorities but continued to claim benefit of the Notification - this is a clear case of mis-declaration and suppression of facts by the appellant in order to claim the benefit of Notification which was not available to them. Penalty u/s 112(a) of the Customs Act 1962 - HELD THAT - Taking into consideration that there is no evidence of the fact that the General Manager had a role in suppressing the facts before the Customs Authorities in claiming the benefit while filing the Bills of Entry is not forthcoming; hence the question of imposing penalty on him does not arise. Accordingly the penalty under Section 112(a) of the Customs Act 1962 on Shri Hariharan is set aside. Conclusion - i) The appellant s goods do not qualify for exemption under the relevant Customs Notifications as they are primarily for external use and exemption is restricted to internal use only. ii) The appellant committed mis-declaration and suppression of facts by declaring goods for internal use despite knowing the denial of exemption justifying imposition of duty interest and penalty. iii) The extended period of limitation is applicable for the demand relating to imports during 1997-99 due to suppression but not for the 2002 imports where the demand is barred by limitation. iv) Penalty under Section 112(a) on the General Manager is set aside for lack of evidence of his involvement. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant's imported goods (relays, capacitors, and components used in manufacture of DC defibrillators) are eligible for duty exemption under Customs Notification Nos. 11/1997, 23/1998, and 20/1999, which apply only to DC defibrillators for internal use and pacemakers.

- Whether the appellant committed mis-declaration or suppression of facts by claiming exemption for goods meant for external use as if they were for internal use.

- Whether the extended period of limitation under the Customs Act, 1962 can be invoked for recovery of duty and penalty on the basis of alleged suppression or mis-declaration.

- Whether penalty under Section 112(a) of the Customs Act, 1962 is justified against the General Manager of the appellant company.

- Whether the demand for duty and penalty is barred by limitation in respect of various import periods.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility of Duty Exemption under Notifications for DC Defibrillators

Relevant Legal Framework and Precedents: The exemption notifications relevant are Customs Notification Nos. 11/1997, 23/1998, and 20/1999, which grant duty exemption only for DC defibrillators for internal use and pacemakers. Earlier notifications (e.g., Notification No. 339/86 as amended) included defibrillators for both internal and external use. The Supreme Court's decision in the appellant's own case clarified that the exemption applies strictly to implantable/internal defibrillators and pacemakers, excluding external defibrillators and their accessories.

Court's Interpretation and Reasoning: The Court analyzed the evolution of notifications, noting that earlier notifications allowed exemption for both internal and external defibrillators, but the amendments in Notification No. 8/96 and 4/97 restricted exemption to defibrillators for internal use only. The appellant's product, primarily designed for external use with optional internal paddles, does not fall within the exemption. The Court emphasized strict interpretation of exemption notifications, citing authoritative precedents that exemptions must be construed narrowly and conditions strictly complied with.

Key Evidence and Findings: The appellant admitted the defibrillators were mainly for external use and that internal paddles were optional accessories sold separately. The product manual described the device as designed to provide external counter shocks, with internal paddles being optional. Statements from company officials confirmed that 99% of sales were without internal paddles. The Court also referenced expert and departmental material distinguishing implantable/internal defibrillators from external ones.

Application of Law to Facts: Since the exemption notification explicitly excludes external defibrillators, and the appellant's goods were predominantly external-use devices, the appellant failed to meet the notification's conditions. The optional nature of internal paddles and their exclusion from exemption further disqualified the appellant's claim.

Treatment of Competing Arguments: The appellant argued that the device could be used internally during open-heart surgery and thus qualified. The Court rejected this, noting that without internal paddles (which are optional and rarely sold), the device is not capable of internal use. The Court distinguished this from cases where goods are capable of multiple uses, emphasizing that here the essential condition of internal use was not met.

Conclusion: The appellant's goods do not qualify for exemption under the relevant notifications, and the duty exemption claim is not sustainable.

Issue 2: Allegation of Mis-declaration and Suppression of Facts

Relevant Legal Framework and Precedents: Section 28(1)(b) of the Customs Act, 1962 governs limitation for demand notices, and Section 114A deals with penalties for mis-declaration. The Supreme Court decisions in Commissioner of Customs vs. Jagdish Cancer and Research Center and Commissioner of Customs vs. CT Scan Research Center Pvt. Ltd. were relied upon by the Revenue to establish that failure to produce end-use certificates and false declarations constitute suppression and mis-declaration.

Court's Interpretation and Reasoning: The Court found that the appellant repeatedly declared the goods as meant for internal use in Bills of Entry despite being aware from prior departmental communications (letters and show-cause notices dating back to 1997-98) that such exemption was denied. The appellant failed to produce mandatory end-use certificates or seek extensions, violating statutory conditions. The Court held that this constituted clear mis-declaration and suppression of facts to evade duty.

Key Evidence and Findings: Statements recorded from appellant's officials admitted that the defibrillators were for external use and that internal paddles were optional and rarely sold. The appellant was aware of the denial of exemption from 1997 onward but continued to claim benefit. Undertakings and bonds were furnished but end-use certificates were not produced. The appellant's conduct was deliberate and not bona fide.

Application of Law to Facts: The statutory conditions for exemption required furnishing end-use certificates within three months. Failure to do so and continuing to claim exemption knowing it was not applicable amounted to mis-declaration under the Customs Act. The Court applied the principle that exemption claims must be bona fide and supported by compliance with conditions.

Treatment of Competing Arguments: The appellant contended that the issue was one of interpretation and that there was no positive act of suppression or willful misstatement. They relied on a prior Tribunal order holding that extended limitation could not be invoked due to absence of fraud. The Court distinguished the present facts, emphasizing that the appellant's knowledge of denial and continued mis-declaration demonstrated suppression, justifying extended limitation.

Conclusion: The appellant committed mis-declaration and suppression of facts, invalidating their claim to exemption and justifying penalty and extended limitation.

Issue 3: Invoking Extended Period of Limitation

Relevant Legal Framework and Precedents: Section 28(1)(b) of the Customs Act provides a six-month period for issuance of demand notices, extendable to three years if suppression or fraud is established. The Court referred to prior Tribunal and Supreme Court decisions on limitation and suppression.

Court's Interpretation and Reasoning: The Court held that since the appellant was aware of the denial of exemption since 1997 and continued to claim benefit fraudulently, the extended period of limitation is applicable. However, for the later period (2002 imports), the show-cause notice was issued beyond six months and the department could not invoke suppression afresh, rendering the demand time-barred.

Key Evidence and Findings: Earlier departmental communications and notices put the appellant on notice well before the disputed period. The appellant's failure to produce end-use certificates and continued mis-declaration justified invoking extended limitation for the 1997-99 period. For the 2002 period, the delay in issuing notice barred the demand.

Application of Law to Facts: The Court applied the principle that extended limitation applies where there is suppression or fraud, which was found for the earlier period. For the later period, where no fresh suppression was established and delay was excessive, limitation barred recovery.

Treatment of Competing Arguments: The appellant argued that the matter was contentious and benefit of doubt should be given. The Court rejected this for the earlier period due to clear suppression but accepted it for the later period due to procedural delay.

Conclusion: Extended limitation applies for the 1997-99 period; demand for 2002 imports is barred by limitation.

Issue 4: Penalty on General Manager under Section 112(a) of Customs Act

Relevant Legal Framework: Section 112(a) imposes penalty on persons responsible for mis-declaration or suppression.

Court's Interpretation and Reasoning: The Court found no evidence that the General Manager had a role in suppressing facts or filing false declarations. The penalty imposed on him was therefore set aside.

Conclusion: Penalty on the General Manager is not justified and is quashed.

3. SIGNIFICANT HOLDINGS

"Strict interpretation is to be given to the exemption notifications and it is upon the assessee to prove that he fulfills all the conditions of eligibility under such Notifications. ... Since it is a case of exemption from duty, there is no question of any liberal construction to extend the term and the scope of the exemption notification. Such exemption notification must be strictly construed and the assessee should bring himself squarely within the ambit of the notification."

"The appellant was very well aware of the fact that the product which is basically a defibrillator for external use but capable of using during open heart surgery if the optional accessory of internal defibrillators paddles are also provided, cannot be treated as defibrillators for internal use as contemplated in the exemption provisions."

"The appellant had mis-declared in the Bills of Entry that the products were meant for internal use when actually at the end-use, the Central Excise Authorities had denied the benefit. Non-compliance of the end-use benefit was equivalent to non-availability of the exemption Notification."

"There is no evidence that the General Manager had a role in suppressing the facts before the Customs Authorities in claiming the benefit while filing the Bills of Entry, hence, the question of imposing penalty on him does not arise."

Final determinations:

• The appellant's goods do not qualify for exemption under the relevant Customs Notifications as they are primarily for external use and exemption is restricted to internal use only.
• The appellant committed mis-declaration and suppression of facts by declaring goods for internal use despite knowing the denial of exemption, justifying imposition of duty, interest, and penalty.
• The extended period of limitation is applicable for the demand relating to imports during 1997-99 due to suppression but not for the 2002 imports where the demand is barred by limitation.
• Penalty under Section 112(a) on the General Manager is set aside for lack of evidence of his involvement.
• Appeal against demand for 1997-99 imports is dismissed; appeals relating to penalty on General Manager and 2002 imports are allowed.