2011 (5) TMI 769 - AT - Central Excise

Redemption fine and penalty - respondent had failed to fulfill the conditions subject to which the duty free import has been allowed, and thereby rendering the goods liable for confiscation under Section 111(O) of the Customs Act, 1962, the goods would be liable for confiscation and the confiscation proceedings cannot be dropped just because the same have been taken over by the Court Receiver, only ground on which the penalty has been dropped is that there is no mens rea, respondent have failed to fulfill the post import conditions in respect of goods rendering the same liable for confiscation under Section 111(O) and hence, the penalty on them under Section 112(a) would be attracted. Therefore, the impugned order dropping penal proceedings against the respondent is not correct, matter is remanded to the Commissioner for denovo adjudication, quantum of redemption fine and penalty shall be decided after issuing notice to the respondent/Court receiver

Summary

Issues:
1. Confiscation of imported capital goods due to failure to meet export obligations.
2. Imposition of customs duty, interest, and penalty under Section 112 of Customs Act.
3. Review appeal challenging the dropping of confiscation proposal and penalty imposition.

Issue 1: Confiscation of imported capital goods
The respondent, a 100% EOU, imported capital goods duty-free for manufacturing polyurethane synthetic leather. However, after starting production and operating for about a year, they closed down without meeting export obligations. A show-cause notice was issued for confiscation of the goods, customs duty demand of Rs. 78,72,023, and penalty under Section 112 of the Customs Act. The Commissioner's order dropped the confiscation proposal due to a Court Receiver taking possession of the assets. The department challenged this decision, arguing that goods imported against a bond for specific use can be confiscated if not utilized as intended. Citing legal precedents, the department contended that failure to meet post-import conditions renders goods liable for confiscation under Section 111(O) of the Customs Act.

Issue 2: Imposition of customs duty, interest, and penalty
The department argued that penalty under Section 112(a) of the Customs Act is applicable regardless of mens rea, as it pertains to acts or omissions rendering goods liable for confiscation under Section 111. The Commissioner's order dropping penalty proceedings was challenged on the grounds that the respondent failed to fulfill post-import conditions, making them liable for confiscation under Section 111(O). The Tribunal noted that the penalty can be imposed based on the act or omission related to goods' confiscation, irrespective of mens rea. Thus, the decision to drop penalty proceedings was deemed incorrect.

Issue 3: Review appeal and remand
The Tribunal set aside the Commissioner's order dropping confiscation and penalty proceedings. The matter was remanded for fresh adjudication, considering the observations made. The Tribunal directed the Commissioner to determine the quantum of redemption fine and penalty after notifying the respondent and Court receiver. The decision highlighted the importance of fulfilling post-import conditions and the legal provisions governing confiscation and penalty under the Customs Act.