By TIOL News Service

MUMBAI, JAN 21, 2013: THE appellant imported a consignment of Prednisolone BP/USP/IP from China, declared to be manufactured by M/s. Tainjin Tianyao Pharmaceutical Co. Ltd., China . The goods were covered by invoice and packing list issued by M/s. Sinobright Development Ltd., Hongkong . The impugned goods arrived in India vide Air Way Bill and the bill of entry was filed by the CHA on behalf of the importer. The bills of entry were assessed as per the declaration given therein and the importer paid Customs duty of Rs.5,24,536/-. As per the import policy in force the importer was required to produce a “No Objection Certificate” from the Drug Controller General of India and, therefore, representative samples of the impugned goods were forwarded to the Assistant Drug Controller, Mumbai for obtaining NOC. On scrutiny of the documents, the Assistant Drug Controller, Mumbai, observed that bulk drug “prednisolone” of Chinese origin were supplied through M/s. Sinobright Development Ltd. Hongkong and as per the label and certificate of analysis, the subject drug is purportedly manufactured by M/s.Tianjin Tianyao Pharmaceutical Co. Ltd., China . Since the drug was not directly supplied from China and the importer failed to produce the CCPIT on demand, certified copy of the original label submitted at the time of registration of the product with the Drug Controller General of India was procured by the Assistant Drug Controller from the Registration holder M/s. Rumit International and compared with the label on the container. During the comparison of labels it was observed that the size, text, logo and finishing of labels of imported drugs were totally different from the original label submitted for registration. Therefore, doubts arose about the genuineness of the impugned consignment. The Assistant Drug Controller decided to carry out inspection of the subject consignment. Accordingly, the inspection of the impugned goods was carried out by the officers of the Assistant Drug Controller's office and the Customs along with the representative of the registered agent of the original manufacturer. After examination and comparing of the labels and the container, etc. it was declared that the subject drug was ‘spurious' and not manufactured by the original manufacturer. Statement of Shri Lalit N Shah was recorded under Section 108 of the Customs Act, wherein it was revealed that the importer was not at all in contact with the overseas supplier of the goods and they were in contact only with the indenting agents, M/s. Nidhi Pharmachem . He further admitted that they had only indicated in the purchase order that the goods should be manufactured by the China Company mentioned above. Since the discrepancy was not known, they requested the foreign supplier to take back the goods and the sole responsibility for the violation of the law is on the indenting agents.

On completion of investigation, a show-cause notice was issued to the appellant importer wherein it was proposed to confiscate the goods under importation under Section 111(d) and 111(m) of the Customs Act, for the subsequent destruction and also proposing to impose a penalty under Section 112 (a).

The case was adjudicated and the adjudicating authority ordered absolute confiscation of the imported prohibited drugs under Section 111 (d) and 111 (m) of the Customs Act and further ordered that the prohibited drugs be destroyed by the appropriate authority. He also imposed a penalty of Rs.1.00 lakh on the importer u/s 112(a) of the Customs Act.

In the meanwhile, the appellant preferred a refund claim in respect of the duty paid by them in respect of the consignment imported on the ground that since the consignment has been absolutely confiscated, the Customs duty paid by them should be refunded to them along with interest. The said refund claim was rejected vide order dated 29/06/2010 by the Assistant Commissioner of Customs on the ground that since the refund claim has been filed after a lapse of six months, the claim is time barred. Against this order, the appellant preferred an appeal before the lower appellate authority and the lower appellate authority vide a common order dated 21/01/2010 upheld the absolute confiscation of the goods and the imposition of penalty on the appellants and also rejected their refund claim.

Hence, the appellants are before the CESTAT.

It is submitted that the lower authority has not given any reasoning nor has he made any findings in respect of their claim that the payment of duty made by them should be considered as pre-deposit only and, therefore, the limitation of time prescribed under Section 27 of the Customs Act will not apply; since the goods have been absolutely confiscated and they have not been given clearance they are not liable to pay any duty at all and, therefore, they are entitled for refund. As regards the imposition of penalty it is their contention that they are not responsible for the import of the spurious drug and the responsibility in this regard lies squarely on the indenting agents; that if the foreign supplier has made a mistake, they are not responsible for the same. In any case they have abandoned the goods and in view of the above they are not liable to pay any duty or any penalty.

The Revenue representative reiterated the findings of the lower authority and prayed that the appellants are liable to pay duty as well as penalty.

The Member (Technical) in a detailed order summed up thus -

“5.9 …, the appellant filed bill of entry on 18/04/2009 and duty liability thereon was discharged on 20/04/2009 after assessment of the same. In other words, the taxable event which attracted the duty liability has been completed and, therefore, the duty liability has been correctly discharged. The subsequent confiscation of the goods under the provision of Section 111 (d) has no bearing whatsoever to the liability to pay duty which has been already assigned.

5.10 The appellant has relied on a few judgments of this Tribunal in the case of Ankit Pulps & Boards Pvt. Ltd., and the judgement of the hon'ble High Court of Calcutta, in the case of Calcutta Chemical Co. Ltd. and ICI (I) Ltd. However, the hon'ble High Court of Bombay in the case of CC (Imp) ACC, Sahar Vs. Wockhardt Hospital & Heart Institute reported in 2006 (200) ELT 15 (Bom) [ 2006-TIOL-115-HC-MUM-CUS ] and in the case of Poona Health Services vs. CC (Airport, Mumbai reported in 2009 (242) ELT 335 (Bom) [ 2009-TIOL-353-HC-MUM-CUS ] held that even if the confiscated goods are not redeemed, the liability to pay duty arises on the importer. The decision of the hon'ble High Court of Bombay, the jurisdictional High Court is binding on us. Applying the ratio of these judgements in the facts of the present case, we are of the view that the appellant is liable to pay duty notwithstanding the fact of absolute confiscation of the goods, subsequent to the payment of duty. Thus on merits also, the appellant has no right to have refund of duty paid, apart from the fact that refund claim itself is barred by limitation of time.

6. To sum up, we are prima facie of the view that the appellant has not made out any case for complete waiver of the dues adjudged. Accordingly, we direct the appellant to make a pre-deposit of Rs.50,000/- within four weeks towards penalty and report compliance on …………. On such compliance, the balance of penalty adjudged shall stand waived and recovery thereof stayed during the pendency of the appeal.”

The Member (Judicial) did not agree with the decision taken and, therefore, recorded a separate order, extracted thus –

“4. In this case it is admitted fact that the goods have not been cleared for home consumption.

5. As per Section 47 of the Customs Act, 1962, assessed duty and charges have to be paid before an order permitting clearance of the imported goods for home consumption is made. In this case, the goods have not been cleared for home consumption because the goods have been absolutely confiscated. When the goods have been absolutely confiscated and not cleared for home consumption in my view duty is not payable as observed by the Hon'ble High Court of Bombay in the case of Bombay Hospital Trust Vs. CC (ACC), Mumbai, reported in 2006 (201) ELT 555 (Bom) [ 2006-TIOL-170-HC-MUM-CUS ] wherein the Hon'ble High Court of Bombay has observed that the word ‘payable' in the context of Section 125 (2) is referable to the duty/charges which become due and payable on confiscation. It is pertinent to note that under Section 47 of the Customs Act, assessed duty and charges have to be paid before an order permitting clearance of the imported goods for home consumption is made. Unless the duty and charges are paid, the imported goods are not allowed clearance for home consumption. However, in some cases the imported goods are permitted clearance for home consumption without payment of duty subject to fulfillment of the post clearance conditions set out in the exemption notification. If it is found that the post clearance conditions of the exemption notification are violated, then the goods cleared without payment of duty under Section 47 are liable to be confiscated under Section 111 (o) of the Customs Act. In such cases, the duty becomes payable on confiscation because the benefit of exemption from payment of duty is lost on account of the violation of the post importation conditions set out in the exemption notification.

In cases, where the goods are confiscated before clearance, the duty and charges become payable when clearance of the goods for home consumption are sought for under Section 47 of the Customs Act. In such cases, the duty on the confiscated goods become payable only when clearance of the confiscated goods is sought by exercising the option given under Section 125 (1). Therefore, the legislature has appropriately used the word ‘payable' in Section 125 (2) so that the duty which becomes due and payable on confiscation has to be paid on imposition of fine in lieu of confiscation and in all other cases duty and charges have to be paid as and when they become due and payable.

6. While holding the duty is payable, the Member (Technical) has relied on the decision of the Hon'ble apex Court in the case of UOI Vs. Security & Finance (P) Ltd., (supra), Garden Silk Mills Ltd., (supra), Wockhardt Hospital & Heart Institute (supra), and Poona Health Services (supra). In all these cases the goods were cleared for home consumption without payment of duty claiming the exemption under notification imposing post importation condition, which is not in the case in hand and the goods are not cleared for home consumption. As no clearance has taken place for home consumption, therefore, the duty paid by the applicant is sufficient to safeguard the interest of the Revenue.

7. Accordingly, waiver of requirement of pre-deposit of penalty is granted during the pendency of the appeal.”

The difference of opinion was, therefore, referred to the third Member.

The Third Member on reference viz. Member(T) held -

“6….I find that the rejection of the refund claim by the Asst. Commissioner of Customs is a different proceedings and not the part of the present appeal.

7. It is the contention of the Ld. Counsel that since they were not required to pay any duty, the amount paid should be considered as a pre-deposit. I find that the applicant have filed Bill of Entry on 18.4.2009 which was assessed by the department under Sec. 17(4) of the Customs Act and thereafter duty was paid by the importer under the head ‘037 Customs-Import duty' on 20.04.2009. Therefore, it is not correct to say that duty paid by them was not the duty and could be treated as a pre-deposit. I also find that the applicant had filed application before the Asstt. Commissioner of Customs claiming refund of customs duty paid by them against the impugned Bill of Entry. Their refund claim was rejected by the Asstt. Commissioner of Customs. The order passed by the Asstt. Commissioner rejecting the refund claim is not part of present appeal. Therefore, at this stage, the contention of the applicant that the amount which was rejected by the Asstt. Commissioner can be treated as a pre-deposit in the present appeal against imposition of penalty is not acceptable.

8. Since the penalty of Rs. One lakh was imposed on the applicant by the Addl. Commissioner of Customs and the same was confirmed by the Commissioner (Appeals) in the impugned order, prima facie, the applicant is required to make pre-deposit of Rs.50,000/- as ordered by the Hon'ble Member (Technical) in his order. I, therefore, agree with the Hon'ble Member (Technical)'s view that pre-deposit of Rs.50,000/- towards penalty is required to be made by the applicant. The reference is accordingly answered.”

So, the Majority order is that the appellant has to make a pre-deposit of Rs.50,000/- towards the penalty imposed and report compliance.

(See 2013-TIOL-129-CESTAT-MUM)