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2018 DIGILAW 299 (KER)

Commissioner of Customs, Kochi v. Nalin Choksey

2018-04-03

ASHOK MENON, K.VINOD CHANDRAN

body2018
JUDGMENT : Vinod Chandran, J. The appeal is by the Commissioner of Customs against the order of the Customs, Excise & Service Tax Appellate Tribunal setting aside the redemption fine and also the duty imposed for release of the vehicle seized from the respondent/assessee; who opted to pay redemption fine and duty leviable. From the possession of the respondent/assessee herein, a Porsche Carrera car was recovered, which he had purchased from one Shailesh Kumar who had purchased it from the original importer Sri. Jalaludheen Kunhi Thayil. The vehicle was seized, pursuant to the investigation carried out on the basis of the information received by the Directorate of Revenue Intelligence (DRI). 2. The investigation revealed violation of EXIM Policy Conditions in selling the vehicle before the period of two years from the date of import. There was also alleged mis-declaration of model, description of Customs Appeal 18/09 the goods and resultant diminution of value on which duty was levied; i.e.: short-levy of duty. The vehicle was imported as manufactured in May, 1998, while it was actually manufactured in 2.3.2000. The Commissioner issued notice to the importer, broker and two purchasers, and concluded the proceedings as per Annexure-A. A redemption fine of Rs.6,00,000/- with interest liability of Rs.10,85,287/- along with differential duty of Rs.17,92,847/- was levied. On the initial seizure itself, the respondent/owner had obtained release of the vehicle by providing Bank Guarantee for the entire market value of the vehicle, provisional duty bond and indemnity bond. The respondent on conclusion of proceedings paid redemption fine, interest and duty as provided under Section 125 of the Customs Act, 1962 (hereinafter referred to as 'Act', for short). The respondent then challenged the order of the Commissioner before the Tribunal, which set aside the redemption fine as also the duty levied, which results in refund of the duty levied as also the redemption fine remitted by the respondent. 3. The Tribunal reasoned that the respondent is a bona fide purchaser, that too after the two years Customs Appeal 18/09 prohibition of sale period. The respondent, not having imported the vehicle there could be no levy of duty on the subsequent purchaser nor is there cause for imposition of redemption fine, was the finding. 3. The Tribunal reasoned that the respondent is a bona fide purchaser, that too after the two years Customs Appeal 18/09 prohibition of sale period. The respondent, not having imported the vehicle there could be no levy of duty on the subsequent purchaser nor is there cause for imposition of redemption fine, was the finding. The Tribunal relied on the decision of the Mumbai Bench of the Tribunal in 2000 (122) ELT 710 (T) [VXL India Ltd. v. Commissioner of Customs], which was confirmed by the High Court of Bombay in 2006 (193) ELT 396 (Bom) [Commissioner of Customs v. VXL India Ltd.]. It also relied on the decision dismissing the Special Leave Petition filed against the aforesaid decision of the Bombay High Court, as is seen from 2006 (197) ELT A121 (SC). Reliance was also placed on 2000 (115) ELT 3 (SC) [Mohan Meakin Ltd. v. CCE, Kochi]. 4. The questions of law as arising from the order of the Tribunal on which notice has been issued, as available in the memorandum of the Customs Appeal are the following: “(a) Whether Customs Duty and redemption fine can be demanded from the person in ownership and custody of the imported goods? (b) In what circumstances can a person other than the actual importer be liable to pay Customs Duty and Redemption Fine on goods imported in violation of Customs Law? (c) Can the imported goods be subject matter of a charge for payment of Customs Duty and Interest due thereon irrespective of whether or not the ownership in these goods have been transferred to a person other than the original importer? (d) Whether the order passed by the Customs Excise and Service Tax Appellate Tribunal, Bangalore Bench holding that the respondent is not liable for payment of differential duty and redemption fine is correct and sustainable in law?” 5. We would first look at the decisions relied on by the Tribunal. Mohan Meakin (supra) was a case in which proceedings were taken for confiscation of imported goods from a consumer of such goods who had purchased the same from the importer who had redeemed it under Section 125 of the Act. The appellant therein was a manufacturer of beer using lupo-fresh aromatic hop pellets, normally imported from abroad. Mohan Meakin (supra) was a case in which proceedings were taken for confiscation of imported goods from a consumer of such goods who had purchased the same from the importer who had redeemed it under Section 125 of the Act. The appellant therein was a manufacturer of beer using lupo-fresh aromatic hop pellets, normally imported from abroad. The appellant through an agency obtained the hop pellets from one M/s. Arusan Industries who, in turn, had received the same from M/s. Integrated Exports, Madras. On a raid conducted by the DRI in the premises of the appellant, it was revealed that there was an investigation by the Customs Department into the import of the hop pellets, which were purchased by the appellant. The appellant on a query made to their supplier; M/s. Integrated Exports, was informed that the consignment was the subject matter of proceedings under Section 111 (d) of the Act and after adjudication by the Department, the goods were redeemed by them on payment of redemption fine. The proceeding initiated against the appellant was contested specifically on the ground of the appellant being a bona fide purchaser and the goods purchased being already subject to confiscation under Section 111 and released on payment of redemption fine under Section 125. The subsequent proceeding, according to the Department, was independent proceeding, finding further undervaluation of the goods, which would enable confiscation under Section 111 of the Act. The Hon'ble Supreme Court found, in para 6 thereof, that “there was an obligation on the adjudicating authority to find out the market value of the goods so imported and to collect all duty and other charges payable on the goods in question before releasing the goods on payment of redemption fine” (sic). It was also held that “having released the goods thus into the market and permitting the sale of the same, in our opinion, it is not open to the Collector to initiate another proceedings under another clause of Section 111 to recover the so-called differences in valuation of the imported goods from the ultimate bona fide purchaser for value”(sic). This puts the facts on a quite distinct area than that in this case. 6. This puts the facts on a quite distinct area than that in this case. 6. The learned counsel for the respondent, however, would place reliance on the following statement of the Supreme Court, in para 6 of Mohan Meakin (supra): “If the Collector failed to make a proper enquiry as to the market value of the goods and released the same after a half-hearted adjudication, we fail to see why a subsequent purchaser be saddled with the liability of undervaluation; more so in the background of the fact that the appellant had no role to play either in the import or earlier adjudication proceedings(sic). The argument is that as in the said case, here, the respondent is a bona fide purchaser and was not responsible for the import and being a subsequent purchaser cannot be saddled with the liability of undervaluation. We are unable to read such a dictum having been laid down by the Hon'ble Supreme Court. We have to look at it in the totality of the facts arising in the individual cases and the dictum cannot be applied, divorced from the facts. 7. The distinguishing aspect, as we see it, is that the goods in Mohan Meakin (supra) were once subjected to proceedings for confiscation under Section 111 and redemption was allowed under Section 125 of the Act. The purchase made by the owner of the goods, was once removed from the redemption effected under Section 125. There can be no identity of facts in the present case, even if the respondent, from whom the vehicle was seized, be a bona fide purchaser. There is no circumstance of an earlier proceeding under Section 111 or redemption under Section 125 of the Act, which puts the issue here in a totally different perspective. We are of the definite opinion that there could be no identity of facts as found from Mohan Meakin (supra) and the declaration made therein cannot be applied to the facts of the present case. 8. We now come to the decision in VXL India Ltd. (supra). We refer to the Tribunal’s order only to understand the facts therein. As in the present case a person had imported a vehicle showing it to be manufactured in the year 1989, which on investigation was revealed to have been manufactured in the year 1992. 8. We now come to the decision in VXL India Ltd. (supra). We refer to the Tribunal’s order only to understand the facts therein. As in the present case a person had imported a vehicle showing it to be manufactured in the year 1989, which on investigation was revealed to have been manufactured in the year 1992. By the time proceedings were taken, the importer had sold the vehicle to another, who was proceeded with for violation of the Import Conditions and short levy of duty, for undervaluation of goods. In that case, the Commissioner had not levied any redemption fine and had only levied duty payable. The Tribunal found that if redemption fine had been imposed, by the Commissioner, the appellant would have had to pay it. The reasoning was that mere bona fide intentions cannot absolve the purchaser from liability; on the principle that a purchaser of stolen goods, however innocent, cannot resist taking away of such goods for restoring it to the rightful owner. However, with respect to the short levy of duty, the Tribunal read Section 28 and Clause (2) of Section 125 of the Act to find that both these provisions could not be invoked simultaneously, especially on a person who is not the importer. On the above reasoning, it was found that there could not be recovery of short levy of duty from a bona fide purchaser, since under Section 28 there is no liability cast on any other person other than importer. We need not refer to the judgment of the Bombay High Court, since no separate reasoning is seen and paragraph No.7 of the order of the Tribunal, has only been extracted with approval. As was noticed earlier, the Supreme Court had rejected the SLP filed. Hence, there can be found no merger of the decision of the Bombay High Court with that of the Supreme Court and the decision rendered by the High Court remains to be that of the High Court. We are not persuaded to follow the said dictum laid down by the High Court and we differ from the same for the following reasons. 9. The liability on the subsequent purchaser would not at all be a consideration in interpreting Section 125 of the Act. We are not persuaded to follow the said dictum laid down by the High Court and we differ from the same for the following reasons. 9. The liability on the subsequent purchaser would not at all be a consideration in interpreting Section 125 of the Act. As has been pointed out by the learned Standing Counsel, when there is a mis-declaration of value, the goods imported becomes prohibited goods, as has been defined under Section 2(33) of the Act, which includes violation of conditions subject to which the goods are permitted to be imported. When a mis-declaration has been made and for that reason short levy of duty, it attracts Section 111 (m) and proceedings are initiated under the said provision for confiscation of goods as has been permitted under Section 111 of the Act. The provision for confiscation under Section 111 lists various contingencies in which such confiscation can be proceeded with and it includes clauses (d), (m) and (o) which are applicable in the import of the subject vehicle. When confiscation is provided and the Commissioner takes proceedings against the said goods and effects such confiscation, then the goods becomes the property of the State. A mitigation is provided insofar as the owner of the goods, from whom the goods are seized, to opt for redemption under Section 125. On payment of redemption fine imposed under sub-section (1) and short levy of duty under sub-Section (2) the owner is entitled to get released the goods. Redemption fine also has to be restricted to the market value of the goods. The payment of duty is not a consequence of the levy under Section 28, but the option exercised under Section 125. The owner from whom the goods are seized does not have the liability to pay the duty, but the goods involved in the import are liable to be confiscated and to save distress on the goods, if the owner, opts to redeem it under Section 25, there is an obligation to pay the duty and fine imposed. 10. In the present case, the redemption fine was imposed at Rs.6,00,000/- and short levy of duty was collected at Rs.17,92,847/-. The subsequent bona fide purchaser may not have any liability to duty. However, by confiscation, the State gets the authority to recover the entire market value of the goods, which would definitely be more than the duty. 10. In the present case, the redemption fine was imposed at Rs.6,00,000/- and short levy of duty was collected at Rs.17,92,847/-. The subsequent bona fide purchaser may not have any liability to duty. However, by confiscation, the State gets the authority to recover the entire market value of the goods, which would definitely be more than the duty. If redemption is not made then the person from whose possession the goods are seized merely looses the property in goods and there could be no further levy of duty on the bona fide purchaser. The Department, despite such confiscation could proceed for recovery of duty too, but only from the importer. 11. Sub-Section (2) of Section 125 reads as follows:- “125 Option to pay fine in lieu of confiscation.- (1) xxx (2) Where any fine in lieu of confiscation of goods is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1) shall, in addition, be liable to any duty and charges payable in respect of such goods.” Section 125 comes into play only after there is a confiscation effected by the Commissioner, which gives an option to the owner or the person from whom the goods were seized to apply for redemption. In applying for redemption, the owner or person from whom the goods were seized would have to pay the redemption fine as imposed by the Commissioner under Section 125(1). Again as is seen from the above extracted sub-Section (2) of Section 125, where any fine in lieu of confiscation of goods is imposed under sub-Section (1), the owner of such goods or the person referred to in sub-Section (1), shall, in addition to the fine, be liable to any duty and charges payable in respect of such goods. Hence, when an option is exercised for redemption in lieu of confiscation, person opts not only to pay the redemption fine but also to make good the short levy of duty. The option being a choice of the person, there cannot be any contention raised against payment of short levy of duty, which is a necessary consequence of redemption under Section 125 of the Act. 12. The option being a choice of the person, there cannot be any contention raised against payment of short levy of duty, which is a necessary consequence of redemption under Section 125 of the Act. 12. Answering the questions of law, we find from the above reasoning on question No.(a) that customs duty and redemption fine can be demanded from the person in ownership and custody of the imported goods on an option exercised for redemption, despite there being no liability to duty on any person other than the importer. With respect to question No.(b) as to a proper case in which a person other than the actual importer could be made liable to pay customs duty and redemption fine, we would not answer it since it does not arise here. With respect to question No.(c), the imported goods on there being a short levy of duty along with interest, would be liable for confiscation. On such confiscation, the Government could sell the goods and realize whatever value is fetched on such sale. For any duty or interest still remaining with respect to the goods, the Department would have to necessarily proceed against the original importer and not against any subsequent purchaser. With respect to liability to pay duty as also redemption fine, we reiterate at the risk of repetition that; it is for reason of the option exercised to redeem the goods. The question (d) also is answered in favour of the Revenue and against the assessee, since the payment of duty and redemption fine is not on any joint and several liability but for reason of the option exercised to redeem the goods by the subsequent purchaser, however bona fide, from whom the goods were seized. 13. Before leaving the matter we notice that the Tribunal, has failed to look at the entire order of the Mumbai Bench in VXL India Ltd. (supra), where it was found that the redemption fine if imposed would have been sustained. The Tribunal in the present case has not only interfered with the duty levied but also with the redemption fine imposed relying on the said decision. The Customs Appeal stands allowed answering the questions in favour of the Revenue and against the respondent. The parties to suffer their respective Costs.