2019 (4) TMI 1467 - HC - Customs

Interpretation of statute - Section 126 of the Customs Act, 1962 - scope of the term 'vest with the Central Government occurring in Section 126 (1) of the Act - Can the Central Government retain the excess auction proceeds after adjusting the customs duty, interest, penalty and redemption fine or has such excess amount have to be returned paid to the owner of the goods? HELD THAT - Under Section 125 of the Act, an option indeed is given to the importer to redeem the goods by payment of fine. A time limit is also set for that purpose. If, as in the present case, the importer fails to avail of that opportunity it leads inevitably to confirming the confiscation of the goods and their sale by public auction. Section 126 (1) of the Act spells out the legal effect of such confiscation . Section 126 (2) of the Act lends a further finality to such vesting. It requires the officer adjudging confiscation to mandatorily take and hold possession of the confiscated goods. The distinction sought to be drawn between confiscation of prohibited goods and of other goods is relevant only to the extent of the discretion in the adjudging officer to permit their redemption by payment of fine. Once there is a failure to pay the fine within the time stipulated, the consequence is the same whether the goods are prohibited goods or other goods . The transient nature of the confiscation ends and it becomes absolute . This is what is made clear by Section 126 of the Act. Sections 125 and 126 of the Act form one continuous scheme and are not to be read disjunctively. Once the vesting of the goods in the government is absolute, it would be inconsistent with the character of that vesting to contend that the Central Government can only recover through the sale of such goods the duty, penalty and interest and should return the excess to the owner/possessor of the goods. The question referred to this Bench is answered in the affirmative by holding that under Sections 125 read with Section 126 of the Act, where the redemption fine in lieu of confiscation is not paid within the time stipulated, the Central Government is entitled to retain the excess auction sale proceeds of the confiscated goods, after adjustment of the duty, penalty, interest and other statutory dues. The central government in such circumstance is under no obligation to return the excess amount to the importer. Petition dismissed.

Issues Involved:
1. Payment of redemption fine, duty, interest, and penalty by the importer.
2. Retention of excess auction proceeds by the Central Government.
3. Interpretation of "vest with the Central Government" under Section 126(1) of the Customs Act, 1962.
4. Correctness of the decision in MMTC v. Surjit Singh Kanda.
5. Auction of confiscated goods during the pendency of an appeal.

Issue-wise Detailed Analysis:

1. Payment of Redemption Fine, Duty, Interest, and Penalty by the Importer:
The petitioner, an importer, failed to pay the redemption fine, duty, interest, and penalty within the stipulated time as per the orders of confiscation under Section 125 read with Section 126 of the Customs Act, 1962. The petitioner made these payments belatedly but before the auction date. The court noted that the petitioner did not challenge the original confiscation orders.

2. Retention of Excess Auction Proceeds by the Central Government:
The core issue was whether the Central Government could retain the excess auction proceeds after adjusting the customs duty, interest, penalty, and redemption fine or if such excess amount must be returned to the importer. The court examined the legislative intent behind Sections 125 and 126 of the Customs Act, 1962, and concluded that once the goods are confiscated and the redemption fine is not paid within the stipulated time, the goods vest absolutely in the Central Government. This absolute vesting means the government is entitled to retain the entire auction proceeds without any obligation to return the excess amount to the importer.

3. Interpretation of "Vest with the Central Government" under Section 126(1) of the Customs Act, 1962:
The court interpreted the term "vest with the Central Government" in Section 126(1) to mean that the confiscated goods become the absolute property of the government. This interpretation was supported by the legislative scheme of the Customs Act, which distinguishes between confiscated and non-confiscated goods. The court emphasized that the vesting of goods in the government is absolute and not limited to recovering duty, penalty, and interest.

4. Correctness of the Decision in MMTC v. Surjit Singh Kanda:
The court reviewed the decision in MMTC v. Surjit Singh Kanda, which held that the Customs Department could not appropriate confiscated goods forever if the importer paid the penalty, duty, and other charges. The current bench disagreed with this view, stating that once the goods are confiscated and vest absolutely in the government, the government has the right to retain the entire auction proceeds. The court overruled the MMTC decision to the extent it held otherwise.

5. Auction of Confiscated Goods During the Pendency of an Appeal:
The court addressed the issue of auctioning confiscated goods while an appeal is pending. It referenced a CBEC Circular and a previous decision in Kailash Ribbon Factory Ltd. v. Commissioner of Customs, which mandated that confiscated goods should not be auctioned without prior permission from the appellate authority. The court directed status quo for the auction of goods under B/E No. 3 until the Commissioner of Customs (Appeals) passes appropriate orders.

Conclusion:
The court concluded that under Sections 125 and 126 of the Customs Act, 1962, if the redemption fine is not paid within the stipulated time, the Central Government is entitled to retain the entire auction sale proceeds of the confiscated goods after adjusting the duty, penalty, interest, and other statutory dues. The government is under no obligation to return any excess amount to the importer. The decision in MMTC v. Surjit Singh Kanda was overruled to the extent it held otherwise. The writ petition was dismissed.

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