Jurisprudentiol
CUSTOMS - Import - Failure to fulfill conditions of exemption - Confiscation - redemption fine - Is duty payable under Section 125 if goods are not redeemed? - No, rules Supreme Court
If goods are confiscated under the Customs Act and if they are not prohibited goods, the owner has to be given an option to redeem the goods on payment of a fine. As per Section 125 of the Customs Act,
1. When goods are confiscated, the owner is given an option to pay a fine in lieu of confiscation.
2. When redemption fine is imposed, the owner shall in addition be liable to pay duty.
Now what happens if the owner declines to or refuses to redeem the goods, is he still required to pay duty?
As it happened in this case, a Hospital imported without payment of duty medical equipment in 1990. The Commissioner passed an order confiscating the goods and allowing redemption in 2002 and demanded a duty of Rs. 1.65 crores. By this time the value of the goods must have come down to a few hundreds. It is not worth redeeming or paying duty. But can the importer escape the clutches of duty?
The Appellant in this case, a hospital imported medical equipment without payment of Customs duty under Notification No. 64/88-cus dated 01.03.1988. The Notification imposed conditions that the Hospital should provide free treatment to at least 40% of their outdoor patients and free treatment to families having less than five hundred rupees income. These are post import conditions. Department found that the appellant had failed to fulfill these conditions. Notice was issued under Section 124 of the Customs Act proposing to confiscate the equipment and impose penalty. There was no demand for duty. The Commissioner confiscated the goods, but allowed the importer to redeem the goods on payment of a redemption fine of Rs. One lakh. He also demanded a duty of 1.65 crores (there was no mention of duty in the notice). The appellant did not redeem the goods and appealed to CESTAT pleading that duty was payable only when goods are redeemed. CESTAT allowed the appeal, but Revenue appealed to the High Court which held that under Section 125(2), the duty payable on the confiscated goods has to be paid on imposition of fine in lieu of confiscation and it is immaterial whether such option is exercised or not. This is the issue in appeal before the Supreme Court.
The Supreme Court held that payment of duty under Section 125(2) was only subject to the exercise of option to redeem. If goods are not redeemed, no duty is payable under Section 125.
Not everything is lost to the Department: The Supreme Court observed, “if the Department wanted the Institute to pay the duty, which may have become 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 separate and independent action by issuing Show Cause Notice to the effect that the Institute had violated the terms of exemption notification and therefore, was liable to pay duty.
Supreme Court allowed the appeal of the importer but made it clear that it would still be open to the Department to take appropriate independent action against the appellant for payment of import duty, in case it is still within period of limitation.