TMI Blog2006 (4) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ine be liable to any duty and charges payable in respect of such goods. Under the provisions of the Customs Act, the imported goods are not allowed clearance for home consumption unless the duties of customs as assessed and other charges payable under the Act are paid. Thus, the duties of customs leviable on importation gets crystalised on assessment and has to be paid before seeking an order for clearance of the goods. Where the imported goods are confiscated before an order for clearance is made with an option to redeem the goods on payment of fine in lieu of confiscation, then the duty on such goods does not become payable on imposition of fine in lieu of confiscation but has to be paid before seeking clearance of the goods. In such a case if the clearance of the goods is not sought for, the question of paying duty does not arise at all. As stated earlier, in respect of the goods confiscated u/s 111(o) with an option to pay fine in lieu of confiscation the duty becomes payable on passing an order u/s 125(1). In such a case, whether the option is exercised or not is wholly irrelevant. Admittedly, the only issue canvassed before the Tribunal was regarding duty liability u/s 125(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese 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 Section 25 of the Customs Act, 1962 provided that the hospital equipments imported by the Charitable Hospitals certified by the Director General of Health Services, New Delhi ('DGHS' for short) will be exempt from payment of whole of the basic customs duty as well as whole of the additional duty subject to the condition that the Hospitals : (a) shall give free treatment, on an average, to at least 40% of all their outdoor patients. (b) shall give free treatment to all indoor patients belonging to families with an income of less t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical 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 upon to show cause as to why customs duty amounting to Rs. 4,40,31,340/- should not be recovered under Section 28(1) and penalty should not be imposed on them under Section 112 of the Customs Act, 1962. On adjudication, the Commissioner of Customs, Air Cargo Complex, Sahar, Mumbai by an order-in-original dated 18-2-2002, ordered confiscation of the goods mentioned in the said show cause notice with an option to redeem the said goods on payment of fine of Rs. 50,000/-. The Commissioner further confirmed the demand of duty amounting to Rs. 4,40,31,340/- and imposed penalty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 essence of tax or rational connection between the taxes and the persons on whom it is imposed. He submitted that under Section 25 of the Customs Act the Central Government is empowered in public interest to grant exemption either absolutely or subject to such conditions to be fulfilled before or after clearance as may be specified in the notification. Where the goods are allowed clearance without payment of duty under a notification subject to the fulfilment of the conditions after clearance, then, the liability to pay customs duty is only suspended or eclipsed. If the owner fails to comply with the conditions attached to the Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 levy penalty. Therefore, the adjudication order passed by the Commissioner of Customs in demanding duty is beyond the show cause notice and hence bad in law. 18.Mr. Bharucha submitted that the duty under the Customs Act, can be recovered either under Section 28 or under Section 125 or under the exemption Notification issued under Section 25 by specifically providing therein that the duty will be enforced if the conditions of the notification are not fulfilled. In the present case, the duty is not demanded under Section 28 because under that section duty could not be demanded beyond the period of five years from the relevant date. Similarly, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xious 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 the contention of the revenue is accepted, then, the option given under Section 125(1) would be meaningless. He submits that the word in addition in Section 125(2) clearly suggests that the duty has to be paid along with the redemption fine. Redemption fine becomes payable only if the owner exercises the option to redeem the goods and, therefore, it must be held that in cases where the option is not exercised, neither the fine nor the duty is payable. 22.Relying upon various decisions of the Tribunal, Mr. Bharucha submitted that Section 125(2) has been interpreted in several cases for more than a decade and in all those cases the Tribunal has consistently h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Bharucha submitted that the said decision has been expressly overruled by the Apex Court in the case of Faridabad CT Scan v. D.G. Health reported in 1997 (95) E.L.T. 161 (S.C.) and in the case of Shri Sathya Sai Institute v. Union of India reported in 2003 (158) E.L.T. 675 (S.C.) and, therefore, it is not open to the revenue to rely upon the said Judgment. He submitted that even otherwise, the ratio laid down in the Mediwell Hospital's case was with reference to the availability of the exemption Notification 64/88 to a Diagnostic Centre run by a private individual purely on a commercial basis and not with reference to the duty-payable under Section 125 (2) of the Customs A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 would not apply on redemption. Where the confiscated goods are not redeemed, the question of recovery of duty under Section 125 does not arise because the recovery of duty under Section 125 is inextricably linked to confiscation. Accordingly, it is submitted that the ratio laid down by the Apex Court in the case Jagdish Cancer which deals with the applicability of Section 28 is not applicable to the facts of the present case. 29.Mr. Bharucha further submitted that even if it is held that non compliance of post importation conditions set out in the Notification is a continuing default, it can give rise to (a) liability to pay penalty under Section 112; (b) liability to confiscation with fine and duty un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cur 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 goods are redeemed. 33.Mr. Shreedharan further submitted that under Section 47(1) of the Customs Act, 1962 customs duty is payable only when clearance of the goods is sought from the customs control. Where the goods are not sought to be cleared from the customs, they may be disposed off under Section 48. In that case, duty will not be payable merely because of the importation of goods. Therefore, if the goods are still lying in the customs control on account of absolute confiscation or on account of non exercise of the option to redeem goods, the duty will not be payable at all. He submitted that the fact that the imported goods have been put to use for a considerable period is wholly irrelevant, because, Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 :- Section 12. Dutiable goods. - (1) Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force, on goods imported into, or exported from, India. (2) .... Section 47. Clearance of goods for home consumption-(1) Where the proper officer is satisfied that any goods entered for home consumption are not prohibited goods and the importer has paid the import duty, if any, assessed thereon and any charges payable under this Act in respect of the same, the proper officer may make an order permitting clearance of the goods for home consumption. 2. ... 111. Conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has become recoverable. However, it was contended and upheld by the Tribunal that, where the goods confiscated under Section 111(o) are allowed to be redeemed on payment of fine in lieu of confiscation then duty on such goods is payable under Section 125(2) only if the option to redeem the goods is exercised and not otherwise. 40. Although Counsel on both sides have argued extensively regarding the applicability of various recovery provisions contained in the Customs Act, in our opinion, the only question to be considered in these appeals is, where the goods confiscated under Section 111(o) are allowed to be redeemed on payment of fine in lieu of confiscation imposed under Section 125(1), whether the duty under Section 125(2) is payable irrespective of the exercise of the option or is it payable along with fine after the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 confiscation under Section 125(1), the duty and charges payable on such goods has to be paid as per Section 125(2). 44. It must be noted that the word 'payable' is used in Section 125(2) to avoid any anomaly or absurdity. The word 'payable' is a descriptive word, which ordinarily means 'that which must be paid or is due or may be paid' but its correct meaning has to be determined in the context it is used. In the context of Section 125(2), the word 'payable' means duty which has become due and payable. That means if the duty is payable on imposition of fine under Section 125(1), then the duty has to be paid on such imposition of fine. If duty is payable at a later point of time, then it has to be paid when due and payable. Under the provisions of the Customs Act, the imported goods are not allowed clearance for ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 challenge to the duty liability nor the challenge to the order of confiscation was pressed by the owners before the Tribunal. In other words, in the present case, the confiscation of the goods as well as the liability to pay duty is accepted by the owners. The only argument advanced before the Tribunal was that, because the owners have not exercised the option of redeeming the goods the duty is not payable. In our view, where the dutiable goods are confiscated under Section 111(o) with an option to pay fine in lieu of confiscation, then, whether the owner has exercised the option of redemption or not the duty becomes payable on passing an order under Section 125(1). In other words, where duty becomes payable as a consequence of the confiscation order passed under Section 111(o), then on passing an order under Section 125(1) duty has to be paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 respect of such goods . A reading of sub-sections (1) and (2) of Section 125 together makes it clear that the 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 customs duty along with an order of imposition of fine in lieu of confiscation of goods, it shall only be referable to sub-section (2) of Section 125 of the Customs Act. It would not attract Section 28(1) of the Customs Act which covers the cases of duty not levied, short levied or erroneously refunded etc. The order for payment of duty under Section 125(2) would be an integral part of proceedings relating to confiscation and consequential orders thereon, on the ground as in this case that the importer had violated the conditions of notification subject to which exemption of goods was granted, without attracting the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 event Section 125(2) is not attracted is also without any merit. As stated earlier, in respect of the goods confiscated under Section 111(o) with an option to pay fine in lieu of confiscation the duty becomes payable on passing an order under Section 125(1). In such a case, whether the option is exercised or not is wholly irrelevant. Admittedly, the only issue canvassed before the Tribunal was regarding duty liability under Section 125(2) and, therefore, the question of remanding the matter for deciding the other issues raised in the appeal before the Tribunal does not arise. 52. For all the aforesaid reasons, we are of the opinion that the Tribunal was in error in holding that the liability to pay duty on the goods confiscated under Section 111(o) with option to pay fine in lieu of confiscation imposed under Section 125(1) arises only if the owner exercises an option of redeeming the goods. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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