2007 (4) TMI 427 - AT - Customs

Summary

Issues Involved:

1. Confiscation of two Fometa Fodder Producing Units (FPUs).
2. Imposition of redemption fine.
3. Breach of conditions of ad hoc Exemption Order.
4. Bona fide purchaser defense.
5. Application of Section 120 of the Customs Act, 1962.

Summary:

1. Confiscation of two Fometa Fodder Producing Units (FPUs):
The appellant challenged the order of the Collector of Customs, Madras, dated 5-3-1993, which confiscated two FPUs and imposed a redemption fine of Rs. 4 lakhs. The Tribunal had earlier upheld the confiscation but reduced the fine to Rs. 1 lakh. The High Court of Delhi remanded the matter for re-hearing with a reasoned order. The Collector found that the spares imported under an ad hoc exemption were used to manufacture FPUs, breaching the exemption conditions, making the spares and the FPUs liable for confiscation u/s 111(d) and (o) and 120 of the Customs Act, 1962.

2. Imposition of redemption fine:
The Collector imposed a redemption fine of Rs. 4 lakhs for the two FPUs, valuing each at Rs. 20 lakhs. The High Court of Delhi found the imposition of the fine mechanical and without application of mind, requiring a reasoned order from the Tribunal. The Tribunal noted that the appellant was a bona fide purchaser and reduced the redemption fine to Rs. 1/- for each machine, considering the peculiar facts and circumstances.

3. Breach of conditions of ad hoc Exemption Order:
The Revenue argued that the importer breached the conditions of the ad hoc Exemption Order No. 103/87 dated 30-3-1987, which exempted 50 FPUs from customs duty, provided they were donated and used for demonstration and training purposes only. The spares imported under this exemption were used to manufacture additional FPUs, violating the exemption conditions, making the spares and the FPUs liable for confiscation.

4. Bona fide purchaser defense:
The appellant, Directorate of Agriculture, Rajasthan, argued they were bona fide purchasers for value without notice of the breach of exemption conditions. The Tribunal acknowledged this defense, noting that the appellant could not have suspected the breach and was unaware of the use of imported spares in the FPUs.

5. Application of Section 120 of the Customs Act, 1962:
The Tribunal applied Section 120, which provides that when the owner of smuggled goods proves no knowledge of the smuggled nature, only the value equivalent to the smuggled goods is liable for confiscation. The Tribunal found that the appellant, being a bona fide purchaser, should not have the entire FPUs confiscated but only the spares used in them. However, due to the lack of specific value of the spares and their depreciation, the Tribunal imposed a token redemption fine of Rs. 1/- for each machine.

Conclusion:
The appeal was partly allowed, reducing the total redemption fine from Rs. 4 lakhs to Rs. 2/- (rupees two only), recognizing the appellant's bona fide purchaser status and the peculiar circumstances of the case.