JUNE 29, 2020

By Sreenivas M

REDEMPTION Fine often forms part of the operative portion of the Orders passed under Customs Act, 1962. Redemption fine is penal and when the charges of the offense are held against any noticee, in addition to the duty liable, redemption fine is also imposed apart from Penalties under various Sections. This article attempts to analyze the legal position and practice followed in respect of the quantum of Redemption Fine. Section 125 of Customs Act, 1962 which deals with Redemption Fine reads as follows:

SECTION 125. Option to pay fine in lieu of confiscation. - (1) Whenever confiscation of any goods is authorized by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being in force, and shall, in the case of any other goods, give to the owner of the goods, or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit:

Provided that where the proceedings are deemed to be concluded under the proviso to sub-section (2) of section 28 or under clause (i) of sub-section (6) of that section in respect of the goods which are not prohibited or restricted, the provisions of this section shall not apply:

Provided further that, without prejudice to the provisions of the proviso to sub-section (2) of section 115, such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon. 

(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.

(3) Where the fine imposed under sub-section (1) is not paid within a period of one hundred and twenty days from the date of option given thereunder, such option shall become void, unless an appeal against such order is pending.

Explanation.-For removal of doubts, it is hereby declared that in cases where an order under sub-section (1) has been passed before the date on which the Finance Bill, 2018 receives the assent of the President and no appeal is pending against such order as on that date, the option under said sub-section may be exercised within a period of one hundred and twenty days from the date on which such assent is received.

The provisions of the above Section give room for contradictory interpretations. Firstly, the heading of the Section indicates that the redemption of confiscated goods is an option. The Section confers power on the adjudicating authority to give the owner of the goods, or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation. It is further buttressed with the latest amendment to the Section by addition of sub-section (3) which states that the option to redeem shall become void if the redemption fine is not paid within a period of one hundred and twenty days from the date of option. When the option becomes void, the fine also becomes void. 

However, the above provisions are contradicted by the first proviso which was introduced vide Finance Act, 2018 which says that where the proceedings are deemed to be concluded under the proviso to sub-section (2) of section 28 or under clause (i) of sub-section (6) of that section in respect of the goods which are not prohibited or restricted, the provisions of this section shall not apply.  Behind the proviso, there is an assumption that goods become liable for confiscation when there is demand under Section 28. Interestingly, the liability to confiscation is assumed to arise even in cases that do not involve an extended period of limitation not being cases of collusion or wilful mis-statement or suppression of facts.

At this point, one has to understand that there cannot be a demand of duty, where the goods are seized and are in the possession of the government. It is a basic principle that goods and duty travel together. Thus, when the goods are in the possession of the government having been seized, there cannot be a demand for duty. Duty payment, even differential duty payment arises when the goods are confiscated and ordered for release to the importer. Section 125(2) which provides that 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, makes this above position clear.

Thus, the proviso which is inserted in Section 125 referring to cases under Section 28 which are essentially in respect of demand of duty where the goods are not seized/ detained by the department, gives room for interpretation that Redemption fine is imposable even if the goods are not seized and are not available for confiscation. Consequent upon the above amendments, redemption fine is an option only when the goods are seized by the department and remain a fine without option when the goods are not available for seizure.

Interestingly, the amendment to the Section came after the Madras High Court  decision in the case of Visteon Automotive Systems India Pvt Ltd  Vs CC Chennai dated 11.08.2017 [ C.M.A. No. 2857 of 2011 & M. P. No. 1 of 2011 ] which deviated from the settled position of law that no redemption fine can be imposed in cases where the goods are not available for confiscation except in cases where the seized goods are released provisionally at the request of the party. Finesse Creations case of High Court of Bombay  2009-TIOL-655-HC-MUM-CUS  and Weston Components' case of the Supreme Court 2002-TIOL-176-SC-CUS had settled this position. There are many decisions by courts that redemption fine cannot be imposed in cases where goods are not available for confiscation. However, Madras High Court disagreed with this position and held as follows: "the availability of the goods is not necessary for imposing the redemption fine. The opening words of Section 125, "Whenever confiscation of any goods is authorised by this Act....", brings out the point. The power to impose redemption fine springs from the authorisation of confiscation of goods provided for under Section 111 of the Act. When once power of authorisation for confiscation of goods gets traced to the said Section 111 of the Act, we are of the opinion that the physical availability of goods is not so much relevant. The redemption fine is in fact to avoid such consequences flowing from Section 111 only. Hence, the payment of redemption fine saves the goods from getting confiscated. Hence, their physical availability does not have any significance for imposition of redemption fine under Section 125 of the Act."  

Before the decision of High Court in Visteon Automotive case, adjudicating authorities were imposing redemption fine only in seizure cases and not imposing Redemption Fine in other cases. Now with the contradictory legal positions after the Visteon Automotive case and introduction of amendments which added further confusion to the issue, the adjudicating authorities are taking a safer route of imposing redemption fine in every case, irrespective of the availability of goods for confiscation.

The protagonist's view is that redemption fine if imposed where goods are available for seizure and not imposed in cases where the goods are not available, it is in a way benefitting and incentivising the act of making the goods unavailable for seizure.

[The author is an Appraiser, Bangalore Customs and the views expressed are strictly personal.]