2017 (2) TMI 420 - HC - Customs

Non-fulfillment of export obligation - Diversion of imported polyester staple fibres under DEEC scheme - Whether in the facts and circumstances of the case, the learned Tribunal is justified in setting aside the demand of duty on the goods on the ground that though they were seized after customs clearance and absolutely confiscated under Section 111 m and 111 o of the Customs Act? Held that - The liability to pay duty has nothing to do with confiscation of the goods under Section 111 and/or under Section 125 of the Act. Under the circumstances, the learned Tribunal has materially erred in setting aside the demand for duty on the goods solely on the ground that they were seized after the customs clearance and absolutely confiscated under Section 111 m of the Customs Act. Identical question came to be considered by the Apex Court in the case of Security & Finance P Limited 1975 (10) TMI 30 - SUPREME COURT OF INDIA , where it was held and observed that the levy of duty and the order of confiscation both operate in a different field. It is further observed that the import duty has to be paid inevitably by the importer. Confiscation or fine in lieu thereof is an infliction on the offender or circle of offenders. It is also observed that sometimes, the burden in both the cases, falls on the same person and at the other times, they may fall on different person. Appeal allowed - decided in favor of Appellant-Revenue.

Summary

Issues Involved:
1. Whether the Tribunal was correct in setting aside the demand for duty on goods seized after customs clearance and confiscated under Section 111(m) and 111(o) of the Customs Act, 1962.
2. Interpretation of Section 12 of the Customs Act, 1962 in relation to duty on absolutely confiscated goods.
3. Legal validity of not charging duty on absolutely confiscated goods while duty is charged on goods permitted to be redeemed against fine under Section 125 of the Customs Act, 1962.
4. Independence of liability to pay duty under Section 12 of the Customs Act, 1962 from various punitive provisions of the Act.

Issue-wise Detailed Analysis:

1. Setting Aside Duty Demand on Seized and Confiscated Goods:
The Tribunal set aside the demand for duty on goods that were seized after customs clearance and absolutely confiscated under Section 111(m) and 111(o) of the Customs Act, 1962. The High Court examined whether this decision was legally correct. The Court referred to the Supreme Court's decision in Union of India & Ors. v. Security & Finance [P] Limited, which held that proceedings under Sections 111 and 125 are penal and independent of the liability to pay duty. The High Court concluded that the Tribunal erred in setting aside the duty demand solely because the goods were seized and confiscated after customs clearance.

2. Interpretation of Section 12 of the Customs Act, 1962:
The Tribunal's interpretation of Section 12 was questioned, as it set aside the duty on confiscated goods cleared from the customs area under Notification No. 117/78. The High Court reiterated that the liability to pay duty is independent of the confiscation of goods, and the Tribunal's interpretation was incorrect. The duty liability continues despite the confiscation under Sections 111 and 125.

3. Legal Validity of Not Charging Duty on Absolutely Confiscated Goods:
The High Court addressed whether it is legally valid not to charge duty on absolutely confiscated goods while duty is charged on goods permitted to be redeemed against a fine under Section 125. The Court held that both confiscation and duty operate in different fields. The duty must be paid regardless of the confiscation status, as per the Supreme Court's precedent. Thus, the Tribunal's decision to not charge duty on absolutely confiscated goods was legally incorrect.

4. Independence of Duty Liability from Punitive Provisions:
The High Court emphasized that the liability to pay duty under Section 12 is independent of punitive provisions under the Customs Act. The Supreme Court's decision in Security & Finance [P] Limited clarified that the obligation to pay duty is separate from penalties or confiscation. The High Court concluded that the Tribunal's setting aside of the duty demand was erroneous, as the duty liability is unaffected by the confiscation of goods.

Conclusion:
The High Court quashed the Tribunal's order setting aside the demand for duty on confiscated goods. The Court upheld that the liability to pay duty is independent of the confiscation under Sections 111 and 125 of the Customs Act. The appeal by the Revenue was allowed, and the Tribunal's order was set aside. The questions of law were answered in favor of the Revenue and against the assessee.