Case Law Details
Brief Facts of the case
The appellant is the successor of M/s.Wockhardt Hospital and Heart Institute (referred to as the ‘Institute’ hereinafter) had a hospital at Bangalore. In the year 1990, the said Institute imported a Cardiac Catherization Laboratory (known as Angiography system) with its spares/accessories.
The said Institute applied for exemption from payment of import duty taking shelter under the Notification no. 64/88-Cus dated 01.03.1988. This notification provides for exemption on medical equipment imported against Custom Duty Exemption Certificate issued by the Director General of Health Services.
Apart from the said certificate, there are certain other conditions which are mentioned in the notification that need to be satisfied to avail the exemption in the future.
The institute was not charged any import duty as it had produced requisite certificate as mentioned above. The revenue came to know that the institute committed breach of the conditions as mentioned in the notification and hence issued a notice as to show cause why the concerned medical equipments should not be confiscated and why a penalty under section 112 of the Customs Act, 1962 should not be levied.
After personal hearing, the adjudicating authority passed an order against the institute was directed to pay the duty amount along with penalty and after confiscation of goods, an option was given to the institute to redeem the said goods on payment of fine.
The institute challenged the above order in Hon’ble CESTAT and got favourable order. The revenue challenged such CESTAT order in Hon’ble Bombay High Court and the Hon’ble court has set aside the order passed by the CESTAT. The institute further challenged the high court order before Hon’ble Supreme Court of India.
Contentions of the Assessee
The institute submitted that in the show cause notice nothing was stated about the payment of duty and as the show cause notice was conspicuously absent in this behalf and in the final order, the duty cannot be demanded. It was argued that such an order would be violation of the principle of natural justice. The Institute also referred to the provisions of Section 125 of the Act which gives an option to pay fine in lieu of confiscation. It was argued that as per this provision, option is to be given to the importer and it is left to the importer who has to exercise the same. It would imply that if no such option is exercised, the goods are not to be redeemed and they would remain the property of the Government. In that case, when such an option is not exercised, no fine is payable and when no such fine is payable, duty could not be demanded by relying on the provisions of Sub-section (2) of Section 125 of the Act, as such an eventuality has not arisen in the present case because of the reason that the Institute had not exercised the option and had not paid the fine. They further referred to the decision of Hon’ble Supreme Court in the case of CC, Mumbai v. Jagdish Cancer & Research Centre 2001(132)ELT 257 (SC).
Contentions of the Revenue
It was argued by the Department that the moment order of confiscation is passed with option given to the Institute to redeem the goods on payment of fine, the eventuality comtemplated under Section 125(2) of the Act comes into operation and therefore, in the scheme of things, it was permissible for the Department to charge duty as well. It was also argued that when it is found that the Institute had violated the conditions stipulated in Notification No. 64/83 dated 01.03.1988, the only conclusion would be that duty was payable by the Institute and therefore, the Department was well within its right to demand the duty.
Held By Hon’ble Supreme Court of India
The Hon’ble Supreme Court referred to Section 124 & 125 of the Customs Act and stated that under section 125(1) of the act, option is given to the importer whose goods are confiscated, to pay the fine in lieu of confiscation and redeem the confiscated goods. Before this action is taken, Show Cause Notice is to be issued under the provision of Section 124 of the said Act. This provision pertains to confiscation of goods and provides procedural safeguards inasmuch as there cannot be any order of confiscating any goods or imposing any penalty on any person without complying with the procedure contained in Section 124. Section 124 mandates issuance of the Show Cause Notice before passing any such order and contemplates two actions: first, relating to confiscating of the goods and second, pertaining to imposition of penalty. Pertinently, this action doesnot deal with payment of import duty at all.
It is not in dispute that a show cause notice has been issued and nothing was stated about the payment of duty. However, in spite of the fact that Show Cause Notice was limited to confiscation of the goods and imposition of penalty, the final order which was passed included the direction to pay the customs duty as well. It is clear that when such an action was not contemplated, which even otherwise could not be done while exercising the powers under Section 124 of the Act, in the final order there could not have been direction to pay the duty.
The Hon’ble Supreme Court is of the view that section 125(2) would not apply in case where option to pay fine in lieu of confiscation is not exercised by the importer. The trigger point is the exercise of a positive option to pay the fine and redeem the confiscated goods. Only when this contingency is met, the duty becomes payable.
In the present case, the above option has not been exercised. Further, the stipulation contained in the adjudicating order was only contingent in nature which contingency would have arisen only on exercising the option by the importer to pay fine in lieu of confiscation and to redeem the goods.
The Hon’ble Supreme Court further states Section 124 deals with confiscation of goods and penalty and does not deal with payment of import duty. No doubt, such a payment of import duty becomes payable by virtue of sub-section (2) of Section 125 but only when condition stipulated in the said provision is fulfilled, namely, fine is paid in lieu of confiscation of goods. When the Department chose to take action under Section 124 of the Act, it should have been alive of the situation that the noticee may not exercise the option and in such case, duty would not be payable automatically.
It has been further emphasised that when in the show cause notice issued under section 124, nothing was stated about the payment of import duty, there could not have been direction to that effect in the final order. Further, insofar as section 125(2) is concerned, the contingency contained therein did not occur in the present procedure for want of exercise of option to pay fine.
Accordingly, the Hon’ble Supreme Court has allowed the appeal.
The Hon’ble Supreme Court further states that it is not that department is without remedy. If the importer has not satisfied the conditions stipulated in the said notification, the importer is found to have violated those conditions, Show Cause Notice could always be given under the said notification on payment of duty, independent of the action which is permissible under Section 124 and Section 125 of the Act. It is made clear that it would still be open for the department to take appropriate independent action against the appellant for payment of import duty in case it is still within period of limitation.
