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2015 (4) TMI 348 - SC - CustomsDemand of duty on confiscated goods - option to redeem the goods in lieu of confiscation - Scope of Sections 124 and 125 - import of medical equipment - Notification No. 64/88-cus dated 01.03.1988 - Breach of condition of Notification - Confiscation of goods - Imposition of penalty - Held that - It is not in dispute that Show Cause Notice in the instant case was issued under Section 124 of the Act. - Nothing was stated about the payment of duty. However, in spite of the fact that Show Cause Notice was limited to confiscation of the goods and imposition of penalty, the final order which was passed included the direction to pay the customs duty as well. It is clear that when such an action was not contemplated, which even otherwise could not be done while exercising the powers under Section 124 of the Act, in the final order there could not have been direction to pay the duty. Notwithstanding the aforesaid position, as pointed out above, the Department is taking shelter under the provisions of sub-section (2) of Section 125 of the Act. However, on a plain reading of the said provision, we are of the view that such a provision would not apply in case where option to pay fine in lieu of confiscation is not exercised by the importer. Trigger point is the exercise of a positive option to pay the fine and redeem the confiscated goods. What is emphasised is that when in the Show Cause Notice issued under Section 124, nothing was stated about the payment of import duty, there could not have been direction to that effect in the final order Further, insofar as Section 125(2) is concerned, the contingency contained therein did not occur in the present procedure for want of exercise of option to pay fine. We, thus, are of the opinion that the view taken by the CESTAT is correct and the contrary view taken by the High Court in the impugned judgment 2006 (4) TMI 137 - HIGH COURT OF JUDICATURE AT BOMBAY is not warranted on the interpretation of Section 125(2) of the Act. Argument raised in case 2001 (8) TMI 113 - SUPREME COURT OF INDIA predicated on Section 28(1) of the Customs Act and plea was that notice was not issued by the competent officer and was also beyond the time prescribed under Section 28(1). In that context, the Court dealt with the provisions of Section 125(1) as well as 125(2) and observed that order of payment of duty under Section 125(2) would be an integral part of the proceedings relating to confiscation and consequential orders thereon. This order, however, must be pursuant to a show cause notice and adjudication. The court was not dealing with the question as to whether sub-section (2) of Section 125 would be applicable even when option to pay fine in lieu of confiscation is not exercised. - Decided in favour of assessee.
Issues Involved:
1. Breach of conditions of Notification No. 64/88-Cus dated 01.03.1988. 2. Issuance of show cause notice under Section 124 of the Customs Act, 1962. 3. Confiscation of goods and imposition of penalty under Section 111(o) and Section 112 of the Customs Act, 1962. 4. Demand for import duty under Section 125(2) of the Customs Act, 1962. 5. Interpretation of Section 125(2) of the Customs Act, 1962. Detailed Analysis: 1. Breach of Conditions of Notification No. 64/88-Cus dated 01.03.1988: The appellant, successor of M/s. Wockhardt Hospital and Heart Institute, imported a Cardiac Catherization Laboratory (Angiography system) valued at Rs. 1,14,23,471/- in 1990, claiming exemption from import duty under Notification No. 64/88-Cus dated 01.03.1988. This notification provided exemption on medical equipment imported against a Custom Duty Exemption Certificate issued by the Director General of Health Services, subject to certain conditions. These conditions included providing free treatment to at least 40% of outdoor patients and reserving 10% of beds for indoor patients from families with an income of less than Rs. 500 per month. The Revenue authorities later found that the Institute had breached these conditions, leading to the issuance of a show cause notice. 2. Issuance of Show Cause Notice under Section 124 of the Customs Act, 1962: A show cause notice dated 12.01.2000 was issued under Section 124 of the Customs Act, alleging breach of the conditions of the exemption notification and proposing confiscation of the medical equipment and imposition of a penalty. The notice did not mention the demand for import duty. 3. Confiscation of Goods and Imposition of Penalty under Section 111(o) and Section 112 of the Customs Act, 1962: The adjudicating authority, after considering the Institute's reply and personal hearing, found that the Institute had breached the conditions of Notification No. 64/88. Consequently, the medical equipment was confiscated under Section 111(o) of the Customs Act, with an option to redeem the goods on payment of a fine of Rs. 1,00,000. Additionally, the Institute was directed to pay duty amounting to Rs. 1,65,24,050 and a penalty of Rs. 25,000 under Section 112(a) of the Act. 4. Demand for Import Duty under Section 125(2) of the Customs Act, 1962: The Institute challenged the order before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), arguing that the show cause notice did not mention the demand for duty, making the final order violative of natural justice. The CESTAT agreed, holding that duty demand was not sustainable as the option to pay fine in lieu of confiscation was not exercised by the Institute. The High Court, however, reversed this decision, interpreting Section 125(2) to mean that duty becomes payable irrespective of whether the option to pay fine is exercised. 5. Interpretation of Section 125(2) of the Customs Act, 1962: The Supreme Court examined the interpretation of Section 125(2) in detail. It held that the trigger point for the duty under Section 125(2) is the exercise of the option to pay fine and redeem the confiscated goods. Since the Institute did not exercise this option, the duty was not payable. The Court noted that the show cause notice under Section 124 did not include a demand for duty, and the final order could not impose such a demand. The Court emphasized that the Department could have taken independent action for duty recovery under the exemption notification but failed to do so. Conclusion: The Supreme Court allowed the appeal, setting aside the High Court's order and reinstating the CESTAT's decision that the duty demand was not sustainable. The Court clarified that the Department could still take independent action for duty recovery if within the limitation period.
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