By TIOL News Service

ERNAKULAM , APRIL 10, 2018: THIS is a Revenue appeal against the order of CESTAT 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.

The facts are - 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.

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 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 March 2000.

The Commissioner issued notice to the importer, broker and two purchasers, and concluded the proceedings. 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. Nonetheless, the respondent challenged the order before the Tribunal, which set aside the redemption fine as also the duty levied, which resulted in refund of the duty levied as also the redemption fine remitted by the respondent.

The Tribunal relied on the decision of the Mumbai Bench of the Tribunal VXLIndia which was confirmed by the High Court of Bombay and upheld by the apex court. Reliance was also placed on the decision in Mohan Meakin Ltd. - 2002-TIOL-448-SC-CUS-LB.

Against this order - 2008-TIOL-2515-CESTAT-BANG, the Commissioner of Customs is before the Kerala High Court and raises the following questions of law –

(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?

The High Court distinguished the decision in Mohan Meakin (supra) and as for the decision in VXL Ltd., the Bench observed that it is not persuaded to follow the said dictum laid down by the High Court on account of the reason, inter alia , that 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.

It was further observed -

"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."

Referring to sub-section (2) of Section 125 of the Customs Act, 1962, the High Court added -

++ 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).

++ 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.

Accordingly, the questions of law were answered thus –

(a) 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.

(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.

(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.

(d) 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.

The High Court also pointed out that the Tribunal had 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.

In fine, the Revenue Appeal was allowed.

(See 2018-TIOL-660-HC-KERALA-CUS)