REDEMPTION FINE – A PENALTY?

[Mr. M. GOVINDARAJAN]

“Redemption fine” as it is known is the option given by the adjudicating authority to the person whose goods are confiscated, to pay fine in lieu of   confiscation.  This provision finds its place in section 125 of the Customs Act, 1962 and in Rule 29 of the Central Excise Rule, 2002.  Goods can be seized under section 110 of the Customs Act on reasonable belief that the same are liable to confiscation under section 111 (in case of import), 113 (in case of export) of the Customs Act, and under Rule 25 of the Central Excise Rule, 2002 (in case of excisable goods) & Rule 15 (for inputs & capital goods) of the CENVAT Credit Rules 2004.   In Central Excise,  section 110 of the Customs Act is used to seize goods, documents or things and under Rule 24  of the Central Excise Rules,2002(only for excisable goods).   By virtue of notification No. 68/63 dated 4.5.63 issued under Section 12 of the Central Excise Act, 1944, the said provision of section 110 (along-with some other sections of the Customs Act are made applicable in case of Central Excise matters). 

Section 125 of the Customs Act provides for the option to pay fine in lieu of confiscation. The said section provides that whenever confiscation of any goods is authorized by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being in force, and shall, in the case of any other goods, give to the owner of the goods or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit.   Such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon.     Where any fine in lieu of confiscation of goods is imposed  the owner of such goods or the person shall, in addition, be liable to any duty and charges payable in respect of such goods.

The Supreme Court in ‘Collector of Customs, Bombay vs M/s Elephanta Oil and Industries Ltd., Bombay’ - 2003 (1) TMI 108 - SUPREME COURT OF INDIA, Final Order No. 52/92-C, dated 18.02.2002 (JAIN SHUDH VANASPATI LTD. Versus COLLECTOR OF CUSTOMS, BOMBAY - 2002 (2) TMI 1029 - CEGAT, NEW DELHI) held that from the perusal of Sections 112 and 125 of the Customs Act it is apparent that both operate in different fields, namely, one requires imposition of penalty and other provides for confiscation of improperly imported goods. Section 111 provides that goods brought from the place outside India are liable to confiscation if the goods are improperly imported as provided therein.  In cases where goods are liable to confiscation, discretion is given to the authority to impose penalty.  Further, section 125 empowers confiscation  of such goods and thereafter , confiscated goods vest in the Central Government. The Section further empowers the authority to give an option to the owner or the person from which goods are seized to pay fine in lieu of such confiscation for return of the goods and the fine is also limited up to the market price of the goods. Therefore, levy of fine in lieu of confiscation is in addition to levy of penalty imposable under Section 112.

Redemption fine is a fine.   Whether it amounts to penalty?.   In strict sense the redemption fine is not a penalty.   It is payable in addition to the penalty imposed under Section 112 and/or any duty payable.

The Department issued instruction on 03.06.2013 in which it has taken the view that redemption fine is not a penalty. The Department cannot file appeal before the Higher authorities if the amount involved is less than Rs.5 lakhs. For this purpose the Department took a view that the redemption shall also be clubbed with the duty, penalty etc., for calculating the monetary limit for filing appeal by the Department. The Department gave instructions as detailed below:

Redemption fine is an option in the hand of the owner of goods to redeem goods confiscated by the department for violation of any provisions of the Customs Act.  On the other hand, penalty is imposed on any person who violates the provisions of the Customs Act  while importing or exporting the goods out of India. Therefore, the nature and scope of penalty is different from that of the redemption fine. While penalty is in persona, redemption fine is on goods. However, both redemption fine and penalty are imposed for violations of the statutory provisions. Therefore, even though redemption fine cannot be said to be covered under the word ‘penalty’ the treatment given to both redemption fine and penalty is required to be identical and hence, redemption fine and penalty would need to be clubbed to decide the applicability of threshold limit prescribed.

It is clarified by the Department that if the imposition of redemption fine alone is the subject matter of dispute, and if such redemption fine exceeds the monetary limits prescribed, then the matter could be litigated further in Courts and Tribunal.  Further, if both the amount of redemption fine and penalty are in dispute and if such redemption fine and penalty is in dispute, taken together, exceed the prescribed monetary limit then the matter should be litigated further.