2016 (10) TMI 334 - HC - Customs

Demand of customs duty on confiscated goods - Hospital - import of Echo Cardiography system - exemption as per Notification No.64/1988 dated 01/03/1988 - non-compliance of condition as mentioned in N/N. 64/1988 - whether the petitioner was justified in holding that when the equipment imported by the petitioner is confiscated and when the petitioner has not chosen the option to redeem the equipment, there is no reason to impose a further obligation to pay duty. The contention is that under Sec.125 of the Act, the authority can pass only alternative orders - Either confiscation with penalty under Section 111(o) and 112(a) of the Customs Act or confiscation under Section 111(o) with an option to pay fine with payment of duty in respect of goods in lieu of confiscation. Held that - A perusal of the provisions of Chapter XIV would indicate that there is no specific provision to impose duty, if the goods are confiscated. The liability to pay customs duty arises only when fine is imposed in lieu of confiscation. Though such an order can be passed, if the petitioner does not pay fine in lieu of confiscation, the remedy of the respondent is only to confiscate the goods. In such an event, there is no provision to recover the customs duty and other charges. The decision in the case of Fortis Hospital Ltd. v. Commr. of Custom 2015 (4) TMI 348 - SUPREME COURT apply. The equipment could be confiscated as the petitioner is not availing the option of payment of redemption fine - demand of customs duty when the equipment is confiscated is not permissible by law - petition allowed - decided in favor of petitioner.

Issues Involved:
1. Authority to demand and recover redemption fine and payment of duty.
2. Compliance with conditions of customs duty exemption.
3. Validity of the order of confiscation and imposition of penalty.
4. Liability to pay customs duty when the option to redeem confiscated goods is not exercised.
5. Maintainability of the writ petition due to the availability of an alternate remedy.

Issue-wise Detailed Analysis:

1. Authority to Demand and Recover Redemption Fine and Payment of Duty:
The petitioner hospital challenged the authority of respondents 2 to 6 to demand and recover ?16 lakhs towards redemption fine and ?33,84,757/- towards payment of duty as per Exts.P7 and P8. The hospital had imported an Echo Cardiography system in 1990 and availed customs duty exemption under Notification No.64/1988. A show cause notice was issued after 9 years for non-compliance with the conditions of the notification, leading to an order of confiscation under Section 111(o) of the Customs Act, 1962, with an option to pay a redemption fine of ?16 lakhs. The petitioner was also imposed a penalty of ?6,50,000/- under Section 112(a) of the Customs Act, 1962.

2. Compliance with Conditions of Customs Duty Exemption:
The petitioner had imported the equipment under customs duty exemption but was later found non-compliant with the conditions stipulated in Notification No.64/1988. The adjudicating authority ordered confiscation of the equipment and imposed a penalty, which was upheld on appeal. The petitioner argued that having paid the penalty, they should not be liable for customs duty as they did not opt for redemption of the confiscated goods.

3. Validity of the Order of Confiscation and Imposition of Penalty:
The adjudicating authority's order of confiscation under Section 111(o) with an option to pay a redemption fine and imposition of penalty under Section 112(a) was upheld. However, the Tribunal later directed the petitioner to pay customs duty as well, which the petitioner contested, arguing that once the goods are confiscated and not redeemed, they should not be liable for customs duty.

4. Liability to Pay Customs Duty When the Option to Redeem Confiscated Goods is Not Exercised:
The petitioner argued that under Section 125 of the Customs Act, the authority can either order confiscation with a penalty or provide an option to pay a fine with payment of duty in lieu of confiscation. They contended that there is no provision to impose both duty and redemption fine if the option to redeem is not exercised. The court referred to the Apex Court's decision in Fortis Hospital Ltd. v. Commr. of Customs, which clarified that duty becomes payable only when the option to pay fine in lieu of confiscation is exercised. Since the petitioner did not opt to redeem the goods, they should not be liable to pay customs duty.

5. Maintainability of the Writ Petition Due to the Availability of an Alternate Remedy:
The respondents argued that the writ petition was not maintainable due to the availability of an alternate remedy under Section 130E of the Customs Act. However, the court decided to entertain the writ petition as it raised a legal issue and had already been admitted. The court noted that the existence of an alternate remedy does not bar the court from entertaining the writ petition, especially when only a legal issue is raised.

Conclusion:
The court concluded that the liability to pay customs duty arises only when the fine in lieu of confiscation is imposed and the option to redeem the goods is exercised. Since the petitioner did not exercise this option, they should not be liable to pay customs duty. The court quashed Exts.P7 and P8, allowing the writ petition.

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