2006 (4) TMI 137 - HC - Customs

Demand of duty on confiscated goods - Option to redeem the goods in lieu of confiscation - Scope of Section 125 - import of medical equipment - Notification No. 64/88-cus - Breach of condition of Notification - Confiscation of goods - Imposition of penalty - Whether redemption of confiscated Goods by the Importer is a pre-requisite to payment of Demand Duty, when equipments are imported without payment of Customs duty ? - HELD THAT - It is well established in law that the taxing statutes have to be construed strictly and unless the literal meaning leads to anomaly or absurdity, the golden rule of literal interpretation should be adhered to. Literal meaning of Section 125(2) is that, whenever the goods liable to be confiscated under the Customs Act are allowed to be redeemed by giving an option to pay fine in lieu of confiscation imposed u/s 125(1), the owner of such goods or the person referred to in Section 125(1) shall, in addition to the fine be liable to any duty and charges payable in respect of such goods. Under the provisions of the Customs Act, the imported goods are not allowed clearance for home consumption unless the duties of customs as assessed and other charges payable under the Act are paid. Thus, the duties of customs leviable on importation gets crystalised on assessment and has to be paid before seeking an order for clearance of the goods. Where the imported goods are confiscated before an order for clearance is made with an option to redeem the goods on payment of fine in lieu of confiscation, then the duty on such goods does not become payable on imposition of fine in lieu of confiscation but has to be paid before seeking clearance of the goods. In such a case if the clearance of the goods is not sought for, the question of paying duty does not arise at all. As stated earlier, in respect of the goods confiscated u/s 111(o) with an option to pay fine in lieu of confiscation the duty becomes payable on passing an order u/s 125(1). In such a case, whether the option is exercised or not is wholly irrelevant. Admittedly, the only issue canvassed before the Tribunal was regarding duty liability u/s 125(2) and, therefore, the question of remanding the matter for deciding the other issues raised in the appeal before the Tribunal does not arise. Thus, we are of the opinion that the Tribunal was in error in holding that the liability to pay duty on the goods confiscated u/s 111(o) with option to pay fine in lieu of confiscation imposed u/s 125(1) arises only if the owner exercises an option of redeeming the goods. In our opinion, where the goods are confiscated u/s 111(o) with an option to redeem the goods on payment of fine in lieu of confiscation imposed u/s 125(1), the revenue is entitled to recover the duty payable on such goods on passing an order u/s 125(1) and it is wholly irrelevant as to whether the owner has exercised the option to redeem the goods or not. The substantial questions of law raised in these appeals are answered accordingly. In the result, both the appeals succeed. The impugned orders passed by the Tribunal are quashed and set aside.

Issues Involved:

1. Whether redemption of confiscated goods by the importer is a pre-requisite to payment of demand duty when equipment is imported without payment of customs duty.
2. Whether the Tribunal is correct in law in holding that duty is payable only if the importer exercises the option of redemption of confiscated goods.
3. Whether the importer is liable to pay customs duty irrespective of the fact that it may not redeem the goods confiscated several years after their use.
4. Whether the importers are liable to pay duty which has arisen not merely because the goods have been confiscated but also because the conditions of the notification have been violated.
5. Whether the importer can escape from payment of customs duty which arose due to the violation of post-import conditions simply by declining to redeem the goods after they have utilized them for their full life.

Detailed Analysis:

1. Redemption of Confiscated Goods and Payment of Duty:
The court examined whether the liability to pay customs duty is contingent upon the importer exercising the option to redeem confiscated goods. The court held that under Section 125(2) of the Customs Act, the duty becomes payable on the imposition of a fine in lieu of confiscation, regardless of whether the option to redeem the goods is exercised. The court emphasized that the literal interpretation of Section 125(2) indicates that the duty is due upon the imposition of the fine, not its payment.

2. Tribunal's Interpretation of Duty Payability:
The Tribunal had previously held that duty is payable only if the importer exercises the option to redeem the confiscated goods. The court disagreed with this interpretation, stating that the plain language of Section 125(2) mandates the payment of duty upon the imposition of a fine, irrespective of the exercise of the redemption option. The court clarified that the liability to pay duty is independent of the owner's decision to redeem the goods.

3. Liability to Pay Customs Duty Irrespective of Redemption:
The court addressed whether the importer is liable to pay customs duty even if the goods are not redeemed after confiscation. It concluded that the duty becomes payable upon the imposition of a fine in lieu of confiscation under Section 125(1), regardless of whether the goods are redeemed. The court stated that the duty liability is triggered by the imposition of the fine, not by the act of redemption.

4. Duty Arising from Violation of Notification Conditions:
The court considered whether the duty arises merely from the confiscation or also due to the violation of the conditions of the exemption notification. It held that non-fulfillment of post-clearance conditions of the exemption notification results in the duty becoming payable. The court emphasized that the exemption is conditional, and failure to meet the conditions results in the duty becoming enforceable.

5. Escaping Duty Payment by Declining Redemption:
The court examined whether an importer can avoid paying customs duty by declining to redeem the confiscated goods after their use. It held that the liability to pay duty is not contingent upon the decision to redeem the goods. The court stated that the duty becomes payable upon the imposition of a fine in lieu of confiscation, and the owner's decision not to redeem the goods does not absolve them of this liability.

Conclusion:
The court quashed the Tribunal's orders, holding that the liability to pay customs duty under Section 125(2) arises upon the imposition of a fine in lieu of confiscation, regardless of whether the option to redeem the goods is exercised. The court emphasized that the duty becomes payable upon the passing of an order under Section 125(1), and the owner's decision to redeem the goods is irrelevant to this liability. The appeals were allowed, and the Tribunal's interpretation was set aside.

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