TMI Blog2012 (11) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... oms area - there is no declaration filed in respect of such baggage to apply the rate of duty applicable to baggage on the impugned goods under Section 78 read with Section 77 of the Customs Act - claim of the department to levy duty under Chapter Heading No. 98.03 does not have sufficient legal basis - “Diamonds, whether or not worked, but not mounted or set” fall under Heading No. 71.02 of the Customs Tariff. Since the goods under seizure are rough as well as cut and polished diamonds, they would be correctly classifiable under Heading No. 71.02 of the Customs Tariff for the purpose of levy Relevant date for the purpose of charging of duty – Held that:- Payment of duty arises at the time of redemption and the option to redeem the goods was exercised when the fine was paid - whatever was the rate of duty applicable at that time, that is, the date on which the fine was paid and the option to redeem the goods was exercised, will be the relevant date for computing the rate of duty also - appellant will not be eligible for any concessional rate of duty and the duty liability will have to be discharged at the tariff rate applicable to the goods under CTH No. 71.02 - appellants are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to M/s. Ambalal Co. and set aside the penalties on other persons. 2.3 M/s. Ambalal Co. filed a writ petition under Article 226 of the Constitution before the Hon ble Bombay High Court. During the pendency of this petition, Kar Vivad Samadhan Scheme, 1998 was promulgated. The firm, therefore, availed of the provisions of the Scheme and deposited 50% of the penalty and fine imposed on it, and withdrew the writ petition before the High Court. The Designated Authority accepted the declaration of Ambalal and passed orders settling the matter under the Kar Vivad Samadhan Scheme, 1998, providing that the declarant can redeem the goods on payment of duty. 2.4 Ambalal approached the Commissioner of Customs in 1999 to redeem the goods and they were told that they have to pay appropriate customs duty. 2.5 Ambalal challenged this order of the Commissioner before the Hon ble Bombay High Court. The Hon ble High Court vide order dated 10-10-2000 [2001 (138) E.L.T. 4 (Bom.)] passed the following order : We do not find any merit in the writ petition. Under Section 125 of the Customs Act duty amount is payable in addition to fine. The dispute pending the High Court was on the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. The Tribunal did not give any finding on the other grounds. 2.10 The Department filed an appeal before the Hon ble Supreme Court against the above order of the CESTAT. Hon ble Supreme Court decided the matter vide order in Civil Appeal No. 8235 of 2003 dated 9-12-2010 [2010 (260) E.L.T. 487 (S.C.)]. The Hon ble Supreme Court, inter alia, observed that :- The three issues that falls for our consideration and decision are :- (a) Whether the benefit of the exemption notification has been rightly granted to the respondent-firm by the Tribunal. (b) Whether the declaration made under the KVS Scheme and the subsequent payment of amount quantified under the said Scheme by the respondent-firm vis-a-vis the release of the diamonds that were confiscated by the department. (c) Whether the Baggage Rules were correctly applied by the Commissioner of Customs, while deciding the duty payable by the respondent-firm. 2.11 As regards the first issue the Hon ble Apex Court held that : It would be antithetic to consider that smuggled goods could be read within the definition of imported goods for the purpose of the Act. In the same light, it would be contrary to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said order of determination of the amount of tax arrear by the designated authority is conclusive and final as provided under Section 90(3). It therefore follows that once the appellant paid the amount of tax arrear as determined by the designated authority, being 50% of the fine and penalty, the same is towards full and final settlement of tax arrears and upon such payment there is no further tax payable by the Appellant. The Appellants are therefore entitled to the release of the diamonds and no further tax can be demanded from them. 3.1.4 The decision of the Bombay High Court in the case of C.C. v. Wockhardt Hospital and Heart Institute - 2006 (200) E.L.T. 15 (Bom.) which in para 51 lays down that duty has to be paid on confiscated goods even when the same is not demanded in the show cause notice can have no application to the present case. The said decision was not rendered in the context of the KVSS and was not concerned with the expression tax arrear as defined in Section 87(m)(ii) of the Finance Act, 1998 nor was it concerned with an Order of the designated authority passed under Section 90 of the said Finance Act which ordered payment of 50% of fine and penalty in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported by a passenger in his baggage. Thus the rate of duty in Heading 98.03 will not apply and the applicable rate would be that of Heading 71.02 which covers diamonds. 3.2.1 Note 1 of Chapter 98 of the Customs Tariff provides that Chapter 98 is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specific heading elsewhere in the Schedule. A bare reading of the said Note would show that for Chapter 98 will override Chapter 71 provided the conditions prescribed in Heading 98.03 are satisfied. The condition of heading 98.03 is that the goods must be imported by the passenger in his baggage. The Supreme Court has held that the condition that the goods must be imported is not satisfied in cases where the goods are smuggled since smuggled goods cannot be said to be imported. Thus the condition of Chapter Heading 98.03 that the goods must be imported is not satisfied and therefore Chapter 98 will not prevail over Chapter 71 in the present case. 3.2.2 This would also follow from a reading of Section 78 of the Customs Act, 1962 which provides that the rate of duty applicable to baggage shall be the rate in force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority under Section 125(1) of the Customs Act, 1962 and option was given to M. Ambalal to redeem the goods on payment of redemption fine. In the Order-in-Original, the Adjudicating Authority also asked M. Ambalal to pay duty. Thus the present case is squarely covered by the decision of the Hon ble Bombay High Court in the matter of Commissioner of Customs (Imports), ACC, Sahar v. Wockhardt Hospital Heart Institute - 2006 (200) E.L.T. 15 (Bom.). In para 51 of the said Order it has been held by the Hon ble Court that where liabilities 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. Fact that duty was not specifically demanded in notice would not matter. 4.2 As regards submission that matter was settled under KVSS, the Commissioner of Customs (Preventive), the Adjudicating authority, had held that :- 37. They have further argued that declaration under KVSS-98 was filed by them and matter was finalized under the said scheme and therefore after the dues were paid under the said scheme their total liability in the case was over/however, this conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification shall be applicable to goods through the said judgment of the Hon ble Supreme Court, I find that the basic facts of that case are different from this case. In the said case, the goods under import were declared and were not imported clandestinely and were not smuggled. The Hon ble Supreme Court in the case of M/s. Montana Valves Compressors (P) Ltd. v. Commissioner of Customs (E.L.T. Vol. 145 2002 page A-164) have declined to interfere in a case a fraud. Since smuggling is nothing but fraud, no exemption notification should be made available to the goods which were smuggled and clandestinely imported into the country with a mala fide intention to evade the payment of Custom duty. I am, therefore, of the view that in such a case of smuggled goods, any exemption notification should not be applicable. Since there is nothing produced by the partly to prove that all the goods were imported through other means than in baggage, the rate of baggage duty prevalent at the relevant period should be applicable in this case. 4.4 As regards classification of these goods, as per Chapter Note 1 to Chapter 98 of the Customs Tariff, This chapter is to be taken to apply to all good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998 dated 10-3-1999 the designated authority has ordered as follows : The declarant imported diamonds without a valid import licence violating Customs Act, 1962. Therefore the diamonds were seized and Show Cause Notice F.No. VHI/10-13/EB/91/4787 dated 6-9-91 was issued to the party. Redemption fine Rs. 60,00,000/- and penalty Rs. 25,00,000/- imposed by Commissioner of Customs (Prev.), in O-I-O No. 43/92 dated 31-12-92 on the declarant was upheld by the CEGAT vide O-I-A No. 2477-87/95 WRB dated 29-12-95. The Bombay High Court in W.P. No. 824 of 1996 filed by the declarant against the said O-I-A passed interim order for stay on furnishing Bank Guarantee of Rs. 12,60,000/- which stands withdrawn on request by declarant as required under KVSS as per H.C. Bombay order dated 25-1-99 in W.P. No. 824 of 1996. The declarant can redeem the goods on payment of duty at appropriate rate. And whereas the declarant has paid Rs. 42,50,000/- (Rupees Forty Two Lakhs Fifty Thousand Only) being the sum determined by the designated authority. And whereas the declarant had filed a Writ Petition No. 824 of 1996 before the High Court of Judicature at Bombay, against the order in respect of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court also in order dated 10-10-2000 [2001 (138) E.L.T. 4 (Bom.)] held that :- The dispute pending the High Court was on the question as to whether goods were of foreign origin and if not whether goods were of foreign origin was entitled to confiscate. Petitioner opted for KVS. But there was no dispute in-respect of duty amount. The dispute was only for redemption fine. Hence we cannot order release of goods without payment of duty. This is also clear from the definition of Tax Arrears under KVS. Hence rejected. This order will not prevent the petitioner from raising legal contentions before the A.O. Therefore, the contention of the appellant that the matter has been finally settled on payment of 50% of the fine and penalty in full and final settlement of the tax arrears is not borne out of the records of the case and has to be rejected completely. 5.3 The Hon ble High Court of Delhi in Iron Master (India) Pvt. Ltd. v. Union of India - 1999 (114) E.L.T. 792 (Del.) dealt with a similar case. In that case, the customs authorities gave the option to the petitioner to redeem the goods on payment of redemption fine of Rs. 15 lakhs and on payment of penalty Rs. 3 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in issuing the certificate of intimation, wherein the petitioner was required to pay the full amount of duty and 50% of the redemption fine and penalty. The requirement for payment of full amount of customs duty in respect of which there is no list is in consonance with the provisions of Section 125 of the Customs Act and other provisions of the Scheme. 19. We find considerable merit in the submission of the respondent that the Scheme has to be given a purposive interpretation and the Scheme cannot be interpreted in a manner so as to defeat the very object and intention of the Scheme. Petitioner cannot claim to pay simply 50% of the duty amount specially when there has been no lis in respect of the same or dispute with regard to it. Petitioner s case is not advanced by the published questions and answers in particular question No. 5. Questions and answers issued are by way of illustration and to guide the assessee. Questions and answers or any inference drawn therefrom cannot negate or make otiose any provision of the Scheme. Answer to question No. 5 cannot be interpreted in a manner so as to negate the essential feature of the Scheme. Question No. 1-3 clearly bring out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 77. In the instant case since the goods are smuggled and the Apex Court has held that smuggled goods cannot be treated as imported goods, the question of classifying them as baggage under Chapter 98 does not arise at all. Secondly, there is no evidence that the goods have been imported by passengers in their baggage except for a statement given by the appellant which is not conclusive to say that the goods have been actually imported as passenger s baggage. Further as per the said statement - diamonds used to be imported/smuggled personally or through carriers by air and by other means . Since the appellants failed to declare those other means , the adjudicating authority took the view that all the diamonds under seizure were imported personally in baggage or through carriers and therefore the goods could be charged to duty at the baggage rate. This is only a hearsay evidence and in our view cannot be taken as a basis for classification of goods as baggage. Further the seizure has not taken place in a customs area at all so as to have a reasonable presumption that it could have been brought in the baggage. Besides, there is no declaration filed in respect of such baggage to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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