2017 (9) TMI 10 - AT - Customs

Demand of duty - confiscated goods - option to redeem not exercised by the appellants - Benefit of N/N. 64/88 dated 1.3.1988 - import of various medical equipments - violation of condition of notification - section 124 of Customs Act, 1962 - Held that - it is not clear whether the show cause notice was issued under section 124 since the copy of the same is not part of the records - The issue whether the department can demand duty under section 124 of the Customs Act, on identical facts, has been analyzed by the Hon ble Supreme Court in the judgment of Fortis Hospital 2015 (4) TMI 348 - SUPREME COURT , where it was held that 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. Penalties - Held that - the certificate has been withdrawn by DGHS in 2000/2002 much later after import. It does not show the period during which the condition was not fulfilled. Hence, in our opinion, the penalty cannot sustain. It is required to be verified whether the show cause notice is issued under section 124 of Customs Act, 1962 - Appeal allowed in part and part matter on remand.

Issues Involved:
1. Validity of invoking Section 124 of the Customs Act, 1962 for denying the benefit of exemption and demanding duty.
2. Applicability of Section 28AB of the Customs Act, 1962 for interest on duty demands for imports prior to 1996.
3. Legitimacy of DGHS's cancellation of the Customs Duty Exemption Certificate (CDEC) and its effect on the exemption benefit.
4. Finality of the issue regarding fulfillment of charity treatment conditions.
5. Impact of the High Court's quashing of the demand notice on the case.
6. Clarification on whether the show cause notice was issued under Section 124 or Section 28 of the Customs Act.

Detailed Analysis:

1. Validity of invoking Section 124 of the Customs Act, 1962 for denying the benefit of exemption and demanding duty:
The appellants argued that Section 124 cannot be invoked for denying the benefit of the notification or demanding duty, relying on the Supreme Court judgment in Fortis Hospital Ltd. The Tribunal observed that Section 124 pertains to confiscation and penalty, not duty payment. The Supreme Court's interpretation in Fortis Hospital clarified that duty demand under Section 124 is unsustainable unless the importer opts to pay fine in lieu of confiscation, which did not occur here. Thus, the Tribunal concluded that the demand for customs duty under Section 124 is unsustainable.

2. Applicability of Section 28AB of the Customs Act, 1962 for interest on duty demands for imports prior to 1996:
The appellants contended that Section 28AB, introduced in 1996, cannot apply retrospectively to imports made before its enactment. They cited the judgment in Diwan Chand Satya Pal Aggl. Imaging Research Centre. The Tribunal agreed, noting that interest cannot be demanded for imports prior to the effective date of Section 28AB.

3. Legitimacy of DGHS's cancellation of the Customs Duty Exemption Certificate (CDEC) and its effect on the exemption benefit:
The appellants argued that the DGHS's cancellation of the CDEC in 2000/2002 without specifying the period of non-fulfillment of conditions is arbitrary and cannot be the sole basis for denying the exemption. They cited judgments in Union of India Vs. Seahorse Hospitals Ltd. and Apollo Hospital Enterprises Vs. Union of India. The Tribunal found merit in this argument, stating that the cancellation without specifying the non-fulfillment period is arbitrary, and the benefit of exemption cannot be denied post-rescission of the notification.

4. Finality of the issue regarding fulfillment of charity treatment conditions:
In Appeal No. C/141/2007, the appellants highlighted that the Tribunal had previously remanded the matter to verify compliance with charity treatment conditions, and the High Court dismissed the Reference Civil Petition, affirming no question of law was raised. The Tribunal acknowledged that this issue has attained finality, reinforcing that the charity treatment condition was fulfilled.

5. Impact of the High Court's quashing of the demand notice on the case:
In Appeal No. C/417/2005, the appellants cited the Kerala High Court's judgment quashing the demand notice, following the Supreme Court's decision in Fortis Hospital Ltd. The High Court had ruled that without the intention to redeem the goods, duty recovery is unsustainable. The Tribunal took this judgment into account, further supporting the unsustainability of the duty demand.

6. Clarification on whether the show cause notice was issued under Section 124 or Section 28 of the Customs Act:
In Appeal No. C/63/2006, the appellants were unable to furnish a copy of the show cause notice, raising uncertainty about whether it was issued under Section 124 or Section 28. The Tribunal noted that verification is required to determine the applicable section, but the overall judgment on the unsustainability of duty demand under Section 124 remains applicable.

Conclusion:
The Tribunal set aside the duty demand and penalties imposed, modifying the impugned orders accordingly. The judgment emphasized that the demand for customs duty under Section 124 is unsustainable, and the DGHS's arbitrary cancellation of the CDEC without specifying the non-fulfillment period cannot justify denying the exemption benefit. The appeals were partly allowed with consequential relief, subject to verification in Appeal No. C/63/2006 regarding the issuance of the show cause notice under Section 124.

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