By TIOL News Service

ERNAKULAM, OCT 07, 2016: THE petitioner hospital imported an Echo Cardiography system in 1990. The equipment was valued at Rs.24,65,451/-. Petitioner availed of the benefit of customs duty exemption as per Notification No.64/1988 dated 01/03/1988. Later, a show cause notice came to be issued after 9 years, calling upon the petitioner to show cause as to why the equipment imported by it should not be confiscated and why a penalty should not be imposed on the petitioner under Section 114A of the Customs Act, 1962 alleging that there is non-compliance of the conditions stipulated in the Notification No.64/1988. Petitioner submitted objections. However, the Adjudicating Authority, while rejecting the contentions of the petitioner, ordered confiscation of the equipment under Section 111(o) of the Customs Act, 1962. However, the petitioner was given an option to pay a redemption fine of Rs.16 lakhs in lieu of confiscation. The petitioner was also imposed a penalty of Rs.6,50,000/- under Section 112(a) of the Customs Act, 1962. Petitioner preferred an appeal which came to be rejected, pursuant to which a demand had been made.

The main contention urged by the petitioner is that when the equipment imported by the petitioner is confiscated and when the petitioner has not chosen the option to redeem the equipment, there is no reason to impose a further obligation to pay duty.

After hearing both sides, the High Court held:

++ section 125(1) permits the owner or person in possession an option to pay in lieu of confiscation such fine as the officer thinks fit. Sub Section (2) indicates that where any fine in lieu of confiscation is imposed under sub Section (1), the owner of such goods shall, in addition, be liable to any duty and charges payable in respect of the goods. Under Section 126 of the Act, the goods that are confiscated vests in the Central Government. According to the petitioner, he had already remitted the penalty as imposed under Section 112. In terms of Sec.112 of the Act, a person is liable to pay penalty, if he does or omits to do any act or omission which would render such goods liable to confiscation under Section 111 of the Act. No doubt, by not complying with the conditions of exemption, the goods in question became liable to be confiscated and therefore the petitioner had become liable to penalty as well as confiscation of goods.

++ the question is, if the goods are confiscated by the Government, under Chapter XIV, whether the owner of the goods or the person in possession at the time of seizure, will have any obligation to pay the customs duty and other charges. Section 111 only indicates that certain item of goods on certain eventualities can be confiscated. Section 112 makes a person liable to pay penalty for committing any act or omission which render the goods liable to confiscation under Section 111. Section 125 is the special procedure by which an option is given to the owner or the person from whom the possession or custody is taken, to redeem the goods in lieu of confiscation. In the case on hand, there is an exercise of jurisdiction under Section 125 of the Act and therefore, sub Section (2) of Section 125 clearly applies. The words in sub section (2) are "where any fine in lieu of confiscation of goods is imposed under sub Section (1)". The meaning is very clear that when such a fine has been imposed in lieu of confiscation, the owner of the goods or the person referred in sub Section (1), shall be liable to pay any duty and charges. Perusal of order would show that such an option was given to the petitioner or rather the order clearly indicated payment of a fine in lieu of confiscation. Therefore, there is nothing wrong in passing an order directing the petitioner to pay duty and other charges. However, the question is, when the owner of the goods or the person from whom the goods are seized does not intend to pay the fine in lieu of confiscation, whether he should be made liable to pay any duty and charges. In fact, there is no clarity in this matter.

++ a perusal of the provisions of Chapter XIV would indicate that there is no specific provision to impose duty, if the goods are confiscated. The liability to pay customs duty arises only when fine is imposed in lieu of confiscation. Though such an order can be passed, if the petitioner does not pay fine in lieu of confiscation, the remedy of the respondent is only to confiscate the goods. In such an event, there is no provision to recover the customs duty and other charges.

++ in the result, this writ petition is allowed.

(See 2016-TIOL-2400-HC-KERALA -CUS)