2025 (1) TMI 232 - AT - Customs

Violation of conditions of the exemption Notification No. 146/94-Cus by National Rifle Association of India (appellant) - sale of imported arms and ammunition to State Rifle Associations and District Clubs instead of using them directly for national or international competitions - confiscation - interest - penalty. Violation of conditions of the exemption Notification No. 146/94-Cus by National Rifle Association of India (appellant) - HELD THAT - A plain reading of the notification nowhere shows that there is any 'Actual User' condition. All that is stated is that the goods should be used for national or international championships or competitions. The notification does not say that the importer itself must use them for the purpose. Evidently, when a National Sports Federation imports goods, it does not itself conduct all the championships and competitions directly. It will work through its constituent State and District bodies. There is nothing in the notification which even remotely suggests that such use is not acceptable. There is no finding in the impugned order that they have not been used for the purpose, but there is only a finding that they were not used by the appellant itself. It would have been a different case if the appellant had sold the imported goods in the market or to individuals. The use of the arms and ammunition in such a case could have been doubted. To accept the Commissioner's reasoning one would have to read in the notification after the words 'use', the words 'by the importer' which cannot be permitted. Confiscation - HELD THAT - There is no violation of the exemption Notification No. 146/94-Cus by the appellant. The finding that the imported goods were liable to confiscation needs to be set aside. Demand of duty and interest - HELD THAT - The basis of the demand of duty is also that the appellant had violated the conditions of the Notification No. 146/94-Cus which have been found to be not correct. Consequently, the demand of duty and interest need to be set aside. Penalty under section 114A - HELD THAT - Penalty under section 114A of the Customs Act can imposed if duty is not paid or short paid by reason of fraud, collusion or wilful misstatement. Since it has been found that the demand of duty is not sustainable, penalty under section 114A also needs to be set aside. Conclusion - There is no 'Actual User' condition in the notification, and the goods were used for the intended purpose, thus no violation occurred. The impugned order set aside - appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

Whether the National Rifle Association of India (appellant) violated the conditions of the exemption Notification No. 146/94-Cus by selling imported arms and ammunition to State Rifle Associations and District Clubs instead of using them directly for national or international competitions.
Whether the imported goods are liable for confiscation under sections 111(d) and 111(o) of the Customs Act, 1962.
Whether the demand for customs duty and interest, along with the imposition of penalty under section 114A of the Customs Act, 1962, is justified.
Whether the demand is time-barred due to prior knowledge of the appellant's practices by the Revenue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Exemption Notification Conditions

Legal Framework: Notification No. 146/94-Cus exempts certain goods from customs duty if used for national or international championships or competitions. The appellant argued that the notification does not require the importer to use the goods themselves.
Court's Interpretation: The court found no "Actual User" condition in the notification, and the notification did not specify that the importer must use the goods directly.
Key Evidence: The appellant provided certificates from the Sports Authority of India and complied with the conditions of the notification by supplying the goods to affiliated bodies for the intended purpose.
Application of Law to Facts: The court determined that the appellant did not violate the notification as the goods were used for the intended purpose by affiliated bodies.
Competing Arguments: The Revenue argued that the exemption was violated by selling the goods, but the court found this interpretation incorrect.
Conclusion: The court concluded that the appellant did not violate the exemption notification.

Issue 2: Confiscation under Sections 111(d) and 111(o)

Legal Framework: Section 111(d) pertains to goods imported contrary to prohibitions, and section 111(o) pertains to non-observance of conditions for exempted goods.
Court's Interpretation: The court found that the goods were not imported in violation of any prohibition and that the exemption notification's conditions were not violated.
Key Evidence: Licenses issued by DGFT did not impose an "Actual User" condition, and the Ministry of Sports recommended the import for supply to associations.
Application of Law to Facts: The court held that the goods were not liable for confiscation as they were imported under valid licenses and used for the intended purpose.
Competing Arguments: The Revenue's argument for confiscation was based on a misinterpretation of the notification's conditions.
Conclusion: The court set aside the finding of liability for confiscation under sections 111(d) and 111(o).

Issue 3: Demand of Duty, Interest, and Penalty

Legal Framework: Demand for duty and penalty under section 114A requires evidence of fraud, collusion, or willful misstatement.
Court's Interpretation: Since the conditions of the exemption notification were not violated, the basis for the demand of duty and penalty was incorrect.
Key Evidence: The appellant complied with all procedural requirements, including obtaining necessary certificates and licenses.
Application of Law to Facts: The demand for duty and penalty was deemed unsustainable due to the absence of any violation.
Competing Arguments: The Revenue's position was unsupported by evidence of any fraudulent intent or misstatement by the appellant.
Conclusion: The court set aside the demand for duty, interest, and penalty.

Issue 4: Limitation Period

Legal Framework: The limitation period for demanding duty is typically five years, subject to conditions of fraud or suppression of facts.
Court's Interpretation: The court did not need to address the limitation issue due to the resolution of other issues in favor of the appellant.
Conclusion: The issue of limitation was rendered moot by the court's findings.

3. SIGNIFICANT HOLDINGS

The court held that "there is no 'Actual User' condition" in the notification, and the goods were used for the intended purpose, thus no violation occurred.
The court emphasized that "any exemption notification must be strictly interpreted," and there is no scope for reading additional conditions into it.
The court concluded that the "demand of duty and interest need to be set aside" as the appellant complied with the notification's conditions.
The court set aside the penalty under section 114A, as the demand for duty was not sustainable.
The appeal was allowed, and the impugned order was set aside, granting consequential relief to the appellant.

The judgment underscores the importance of strict interpretation of exemption notifications and reinforces that conditions not explicitly stated cannot be imposed retrospectively. The court's decision highlights procedural compliance and the absence of fraudulent intent as key factors in determining liability under customs law.

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