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Fortis Hospital Ltd. Versus Commissioner of Customs, Import

2015 (4) TMI 348 - SUPREME COURT

Demand of duty on confiscated goods - option to redeem the goods in lieu of confiscation - Scope of Sections 124 and 125 - import of medical equipment - Notification No. 64/88-cus dated 01.03.1988 - Breach of condition of Notification - Confiscation of goods - Imposition of penalty - Held that:- It is not in dispute that Show Cause Notice in the instant case was issued under Section 124 of the Act. - Nothing was stated about the payment of duty. However, in spite of the fact that Show Cause Noti .....

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the provisions of sub-section (2) of Section 125 of the Act. However, on a plain reading of the said provision, we are of the view that such a provision would not apply in case where option to pay fine in lieu of confiscation is not exercised by the importer. Trigger point is the exercise of a positive option to pay the fine and redeem the confiscated goods.

What is emphasised is that when in the Show Cause Notice issued under Section 124, nothing was stated about the payment of impor .....

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) of the Act.

Argument raised in case [2001 (8) TMI 113 - SUPREME COURT OF INDIA] predicated on Section 28(1) of the Customs Act and plea was that notice was not issued by the “competent officer” and was also beyond the time prescribed under Section 28(1). In that context, the Court dealt with the provisions of Section 125(1) as well as 125(2) and observed that order of payment of duty under Section 125(2) would be an integral part of the proceedings relating to confiscation and conse .....

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MENT A. K. Sikri, J. The appellant herein, which is the successor of M/s.Wockhardt Hospital and Heart Institute (referred to as the 'Institute' hereinafter) had a hospital at Bangalore. Sometime in the year 1990, the said Institute imported a Cardiac Catherization Laboratory (known as Angiography system) with its spares/accessories valued at ₹ 1,14,23,471/-. The said Institute applied for exemption from payment of import duty taking shelter under the Notification No. 64/88-cus date .....

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medical surgical or diagnostic treatment not, only without any distinction of caste, creed, race, religion or language but also: - (a) free, on an average, to at least 40 per cent of all their outdoor patients; and (b) free to all indoor patients belonging to families with an income of less than rupees five hundred per month, and keeping for this purpose at least 10 per cent of all the hospital beds reserved for such patients; and (c) at reasonable charges, either on the basis of the income of t .....

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Services, New Delhi. After sometime, the Revenue authorities/respondent herein came to know that the Institute was committing breach of the aforesaid conditions, as it had not been providing free diagnostic treatment to at least 40 per cent of all its outdoor patients and it was also not giving free treatment to indoor patients having income of less than ₹ 500 per month and for this purpose, it had not got 10 per cent hospital beds reserved for such patients. It resulted in issuance of sh .....

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to why: - (a) the medical equipments/spares and accessories as detailed in Annexure of the Show Cause Notice and valued at ₹ 1,14,23,471/- should not be confiscated under Section 111(o) of the Customs Act, 1962. (b) Penalty should not be imposed under Section 112 of the Customs Act, 1962 for the omission and commission committed by the Wockhardt Hospital & Heart Institute Bangalore. In para 17 of the Show Cause Notice, the Noticee was also asked to show as to why penalty under Section .....

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01.03.1988. Accordingly, the goods, viz., the aforesaid medical equipment was confiscated. The operative portion of order of the confiscation and penalty reads as under: - a) I order, the confiscation of the goods valued at ₹ 1,14,23,471/- mentioned in the show cause notice, under Section 111(o) of the Customs Act, 1962. The importer may redeem them on payment of a fine of ₹ 1,00,000 (Rs. One lakh only), within thirty days of this order. b) I also direct that the importer shall forth .....

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iven to the Institute to redeem the said goods on payment of fine of ₹ 1 lakhs. In addition, the Institute was also directed to pay the duty amounting to ₹ 1,65,24,050/- in view of the failure to discharge the continuing obligation under notification No. 64/88 during the material period . Penalty of ₹ 25,000/- under Section 112(a) of the Act was also levied. The Institute challenged the aforesaid order by filing appeal before the Customs, Excise & Service Tax Appellate Trib .....

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lative of the principle of nature justice. The Institute also referred to the provisions of Section 125 of the Act which gives an option to pay fine in lieu of confiscation. It was argued that as per this provision, option is to be given to the importer and it is left to the importer who has to exercise the same. It would imply that if no such option is exercised, the goods are not to be redeemed and they would remain the property of the Government. In that case, when such an option is not exerc .....

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s. We have also perused the case law cited before us as well as the judgment of the Hon'ble Supreme Court in the case of CC, Mumbai v. Jagdish Cancer & Research Centre 2001(132)ELT 257 (SC). It is no doubt true that under Section 125(2) of the Customs Act, 1962 when goods are redeemed, duty will have to be paid in addition to the fine imposed in view of confiscation. However, the argument before us is not that only fine is required to be paid for redemption of the imported goods. The que .....

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is not tenable as it is only on adjudication that the option is extended by the adjudicating authority and the option could not have been exercised prior to the passing of the impugned order and, therefore, the use of the imported equipment by the appellants; in their Institute cannot amount to their having exercised the option to redeem the goods, which comes at a subsequent stage namely when the impugned order of adjudication is passed. We therefore hold that the duty demand is not sustainabl .....

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that the moment order of confiscation is passed with option given to the Institute to redeem the goods on payment of fine, the eventuality comtemplated under Section 125(2) of the Act comes into operation and therefore, in the scheme of things, it was permissible for the Department to charge duty as well. It was also argued that when it is found that the Institute had violated the conditions stipulated in Notification No. 64/83 dated 01.03.1988, the only conclusion would be that duty was payabl .....

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it appropriate to reproduce the same hereinbelow:- 41. We find it difficult to accept the above interpretation of Section 125 (2). It is well established in law that the taxing statutes have to be construed strictly and unless the literal meaning leads to anomaly or absurdity, the golden rule of literal interpretation should be adhered to. Literal meaning of Section 125(2) is that, whenever the goods liable to be confiscated under the Customs Act are allowed to be redeemed by giving an option to .....

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ption under Section 125(2) of the Act is exercised or not, is immaterial. In order to find out as to whether the High Court is right or CESTAT's interpretation of the provisions of Section 125(2) of the Act is correct, it would be necessary to peep into the said provision along with Section 124 of the Act. These two Sections are worded as follows: Section 124. Issue of show cause notice before confiscation of goods, etc. - No order confiscating any goods or imposing any penalty on any person .....

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n of penalty mentioned therein; and (c) is given a reasonable opportunity of being heard in the matter: Provided that the notice referred to in clause (a) and the representation referred to in clause (b) may at the request of the person concerned be oral. Section 125. Option to pay fine in lieu of confiscation.- (1) Whenever confiscation of any goods is authorised by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this .....

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the case of imported goods the duty chargeable thereon. (2) Where any fine in lieu of confiscation of goods is imposed under sub-section (1) the owner of such goods or the person referred to in sub-section (1) shall, in addition, be liable to any duty and charges payable in respect of such goods. It may be seen from the bare reading of the aforesaid Section that under Section 125(1) of the Act, option is given to the importer whose goods are confiscated, to pay the fine in lieu of confiscation .....

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two actions: first, relating to confiscating of the goods and second, pertaining to imposition of penalty. Pertinently, this action does not deal with payment of import duty at all. It is not in dispute that Show Cause Notice in the instant case was issued under Section 124 of the Act. Once such a Show Cause Notice was issued and as can be seen from the proposed action which was contemplated in this provision (as has been taken note of above), it was also confined to confiscation of the imported .....

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tion to pay the duty. Notwithstanding the aforesaid position, as pointed out above, the Department is taking shelter under the provisions of sub-section (2) of Section 125 of the Act. However, on a plain reading of the said provision, we are of the view that such a provision would not apply in case where option to pay fine in lieu of confiscation is not exercised by the importer. Trigger point is the exercise of a positive option to pay the fine and redeem the confiscated goods. Only when this c .....

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foresaid submission of Mr. Radhakrishnan. The order confiscating the goods has already been reproduced above. Insofar as the payment of fine is concerned, only option was given (and that was only course of action which could be visualised under section 125). The order categorically states that the importer may redeem the confiscated goods on payment of fine of ₹ 1,00,000 (Rs. One lakh only) Indubitably, unless an option is exercised, fine does not become payable. Sub-section (2) of Section .....

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p. forcibly; compel compliance with; force (oneself) on or upon the attention etc. of. In view of the above, we cannot agree with the submission of Mr. Radhakrishnan that fine been imposed in the present case. The stipulation contained in the adjudicating order was only contingent in nature which contingency would have arisen only on exercising the option by the importer to pay fine in lieu of confiscation and to redeem the goods. As already mentioned above, Section 124 deals with confiscation o .....

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matically. It is not that the Department is without any remedy. We have gone through the provisions of notification No. 64/88 dated 01.03.1988. As pointed out above, importer would be exempted from payment of import duty on hospital equipment only when the conditions contained in the said notification are satisfied. Some of the conditions, as pointed out above, are to be fulfilled in future. If that is not done and the importer is found to have violated those conditions, Show Cause Notice could .....

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me payable, it could have taken independent action; de hors Section 124 of the Act, for payment of duty, simultaneously with the notice under Section 124 of the Act or by issuing composite notice for such an action. No doubt, it could have waited for option to be exercised by the Institute under Section 125(1) of the Act as well and in that eventuality, duty would have automatically become payable under Section 125(2) of the Act. But when such an option was not exercised, it could have taken sep .....

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cedure for want of exercise of option to pay fine. We, thus, are of the opinion that the view taken by the CESTAT is correct and the contrary view taken by the High Court in the impugned judgment is not warranted on the interpretation of Section 125(2) of the Act. High Court is not correct in observing that it is immaterial whether option under Section 125(2) is exercised or not. We would like to point out that the High Court has referred to the judgment in the case of 'Commissioner of Custo .....

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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 respect of such goods . A reading of sub-sections (1) and (2) of Section 125 together makes it clear that liability to pay duty arises under sub-section (2) in addition to the fine under sub-section (1). Therefore, where an order is passed for payment of cus .....

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