2017 (1) TMI 1223 - HC - Customs

100% EOU - Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that when the charge against the respondent, which is 100% EOU of diversion of imports and the goods are not available for confiscation, the question of confiscation of such goods and redemption u/s 125 of the Customs Act, 1962 does not arise? - Held that - the respondent-Unit was permitted to deposit the goods in a bonded warehouse without making payment of the Customs duty, on certain terms and conditions and one of the condition was that the finished product was required to be exported, meaning thereby the goods which were permitted to be imported and thereafter deposited in a warehouse without payment of customs duty, were not required to be sold in the open market in India. Thus, once the confiscation of such goods was authorized, Section 125 of the Customs Act shall be applicable. The goods were not available for confiscation, as the goods were already diverted/permitted to be warehoused without payment of duty, on furnishing the bond and the undertaking and thereafter, the respondent-Unit clandestinely and illicitly diverted the goods to the open market, the goods which otherwise were liable to be confiscated, in lieu of confiscation, redemption fine was imposable. The matter is remanded to the Adjudicating Authority for imposition of redemption fine in lieu of confiscation with respect to the goods which were illicitly diverted into the open market - appeal allowed by way of remand.

Issues Involved:
1. Whether the Tribunal committed a substantial error of law in holding that the question of confiscation and redemption under Section 125 of the Customs Act, 1962 does not arise when the goods are not available for confiscation.

Detailed Analysis:

Issue 1: Tribunal's Error in Law Regarding Confiscation and Redemption Fine

The primary issue revolves around the Tribunal's decision that the confiscation of goods and the imposition of a redemption fine under Section 125 of the Customs Act, 1962, do not arise when the goods are not available for confiscation.

Facts and Background:
The respondent, a 100% Export Oriented Unit (EOU), was engaged in manufacturing various yarns and fabrics. The respondent was granted a license for a private bonded warehouse under the 100% Export Oriented Scheme. However, it was found that the respondent illicitly diverted the imported goods into the open market, which were procured by forgoing customs duty. Consequently, the Commissioner of Central Excise & Customs issued a show cause notice demanding duties and penalties. The Adjudicating Authority confirmed these demands but did not order the confiscation of goods or impose a redemption fine since the goods were not available for confiscation. The Tribunal upheld this decision, leading to the present appeal by the Revenue.

Revenue's Argument:
The appellant-Revenue argued that the Tribunal erred in its judgment by not imposing a redemption fine despite the goods being released on bond. The Revenue cited the Supreme Court's decision in Weston Components Limited v. Commissioner of Customs, New Delhi, which held that redemption fine is imposable even if the goods are released on bond. Additionally, the Revenue referred to the Karnataka High Court's decision in Commissioner of Customs, Bangalore v. Shilpa Trading Company, supporting the imposition of a redemption fine when goods are released on bond and later found to be illicitly diverted.

Respondent's Argument:
The respondent contended that since the goods were not available for confiscation at the time of adjudication, the Tribunal correctly held that the redemption fine under Section 125 of the Customs Act is not applicable. The respondent relied on the Bombay High Court's decisions in Commissioner of Customs [Import], Mumbai v. Finesse Creation Inc. and Commissioner of Customs, Export v. National Leather Cloth Mfg. Co., which stated that seizure is a prerequisite for confiscation and subsequent imposition of a redemption fine.

Court's Analysis:
The court noted that the respondent had admitted to the illicit diversion of goods into the open market, which were procured by forgoing customs duty. The court emphasized that Section 125 of the Customs Act authorizes the imposition of a redemption fine in lieu of confiscation when goods are illicitly diverted. The court observed that the bond executed by the respondent allowed the warehousing of goods without payment of duty, under specific conditions, including the export of finished products.

The court disagreed with the respondent's reliance on the Bombay High Court's decisions, distinguishing the facts of the present case where a bond was executed, and the goods were released on this bond. The court held that the Tribunal should have imposed a redemption fine in lieu of confiscation since the goods were not available for confiscation due to their illicit diversion.

Conclusion:
The court concluded that the Tribunal erred in not imposing a redemption fine in lieu of confiscation. The judgment and order of the Tribunal were quashed and set aside. The matter was remanded to the Adjudicating Authority to impose a redemption fine concerning the goods illicitly diverted into the open market. The appeal was allowed to the extent of remanding the case for the imposition of a redemption fine, with no order as to costs.

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