The appellant herein, which is the successor of
M/s.Wockhardt Hospital and Heart Institute (referred to as
the 'Institute' hereinafter) had a hospital at Bangalore.
Sometime in the year 1990, the said Institute imported a
Cardiac Catherization Laboratory (known as Angiography
system) with its spares/accessories valued at
Rs.1,14,23,471/-. The said Institute applied for exemption
from payment of import duty taking shelter under the Notification No.JUDGMENT64/88-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. These conditions are as under: -
“All such hospitals which may be certified by the
said Ministry of Health and Family Welfare, in each
case, to be run for providing medical surgical or
diagnostic treatment not, only without any
distinction of caste, creed, race, religion or
language but also: -
(a) free, on an average, to at least 40 per cent
of all their outdoor patients; and
(b) free to all indoor patients belonging to
families with an income of less than rupees five
hundred per month, and keeping for this purpose at
least 10 per cent of all the hospital beds reserved
for such patients; and
(c) at reasonable charges, either on the basis of
the income of the patients concerned or otherwise to
patients other than those specified in clauses (a)
and (b).”
From a bare reading of the aforesaid stipulations, it
is clear that these conditions are to be fulfilled not at
the time of the import but in future, by the importer while
utilising the imported equipment. Therefore, the conditions
are continuing in nature.
The Institute was not charged any import duty as it had
produced requisite certificate dated 11.02.1991 issued by
the Director General of Health Services, New Delhi. After sometime, the Revenue authorities/respondent herein came to
know that the Institute was committing breach of the
aforesaid conditions, as it had not been providing free
diagnostic treatment to at least 40 per cent of all its
outdoor patients and it was also not giving free treatment
to indoor patients having income of less than Rs.500 per
month and for this purpose, it had not got 10 per cent
hospital beds reserved for such patients. It resulted in
issuance of show cause notice to the Institute.
Pertinently, this show cause notice dated 12.01.2000 was
issued under Section 124 of the Customs Act, 1962
(hereinafter referred to as Act) and after stating that the
aforesaid breach was allegedly committed by the appellant,
in the show cause notice, it was proposed as under: -
“16. Therefore, M/s. Wockhardt Hospital & Heart
Institute, Bangalore are called upon to show cause to
the Commissioner of Customs, Air Cargo Complex, Sahar,
Andheri (E), Mumbai-99 as to why: -
(a) the medical equipments/spares and accessories as
detailed in Annexure of the Show Cause Notice and
valued at Rs.1,14,23,471/- should not be confiscated
under Section 111(o) of the Customs Act, 1962.
(b) Penalty should not be imposed under Section 112
of the Customs Act, 1962 for the omission and
commission committed by the Wockhardt Hospital & Heart
Institute Bangalore.”
In para 17 of the Show Cause Notice, the Noticee was
also asked to show as to why penalty under Section 112 of
the Act should not be imposed. The Institute replied to the
said Show Cause Notice and also desired to be heard in
person. Personal hearing was accorded to the Institute. It had filed written submissions which were also considered.
However, the plea of the Institute in the reply filed to the
Show Cause Notice was not accepted. Orders dated 11.07.2002
were passed by the adjudicating authority holding that the
Institute had, in fact, committed the breach of the
Notification No. 64/88 dated 01.03.1988. Accordingly, the
goods, viz., the aforesaid medical equipment was
confiscated. The operative portion of order of the
confiscation and penalty reads as under: -
“a) I order, the confiscation of the goods valued at
Rs.1,14,23,471/- mentioned in the show cause notice,
under Section 111(o) of the Customs Act, 1962. The
importer may redeem them on payment of a fine of
Rs.1,00,000 (Rs. One lakh only), within thirty days of
this order.
b) I also direct that the importer shall forthwith pay
the duty amounting to Rs.1,65,24,050/-(Rs. One crore
sixty five lakhs twenty four thousand and fifty only)
in view of the failure to discharge the continuing
obligation under notification No. 64/88 during the
material period.
c) I impose a penalty of Rs.25,000 (Rs. Twenty five
thousand only) on the importer under Section 112(a) of
the Customs Act, 1962.
d) The proceedings in respect of DGHS are dropped.”
As is clear from this order, after confiscation of the
goods, option was given to the Institute to redeem the said
goods on payment of fine of Rs.1 lakhs. In addition, the
Institute was also directed to pay the duty amounting to Rs.
1,65,24,050/- “in view of the failure to discharge the
continuing obligation under notification No. 64/88 during
the material period”. Penalty of Rs. 25,000/- under Section
112(a) of the Act was also levied. The Institute challenged
the aforesaid order by filing appeal before the Customs, JUDGMENT Excise & Service Tax Appellate Tribunal (hereinafter
referred to as 'CESTAT'). Since we are concerned with that
part of the order vide which the duty was imposed,
henceforth we will confine our discussion to this aspect
alone.
Before the CESTAT, submission of the Institute was 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, in the final order, the
duty could not have been demanded. It was argued that such
an order would be violative of the principle of nature
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. This contention found
favour with the CESTAT and while accepting the same, CESTAT JUDGMENT discussed the legal position in the following words:
“We have carefully considered the rival
submissions. We have also perused the case law cited
before us as well as the judgment of the Hon'ble
Supreme Court in the case of CC, Mumbai v. Jagdish
Cancer & Research Centre 2001(132)ELT 257 (SC). It is
no doubt true that under Section 125(2) of the Customs
Act, 1962 when goods are redeemed, duty will have to be
paid in addition to the fine imposed in view of
confiscation. However, the argument before us is not
that only fine is required to be paid for redemption of
the imported goods. The question before us is whether
duty is payable even in the event of the option not
being exercised. The decision of the Supreme Court in
Jagdish Cancer & Research Centre cited supra does not
address itself to this issue. No such argument was
ever raised before the Apex Court. The contention of
the learned DR that the conduct of the appellants in
use of the imported equipment after import is
tantamount to their having exercised the option of
redemption and, therefore, they are liable to pay duty,
is not tenable as it is only on adjudication that the
option is extended by the adjudicating authority and
the option could not have been exercised prior to the
passing of the impugned order and, therefore, the use
of the imported equipment by the appellants; in their
Institute cannot amount to their having exercised the
option to redeem the goods, which comes at a subsequent
stage namely when the impugned order of adjudication is
passed. We therefore hold that the duty demand is not
sustainable and accordingly, set aside the same,
however, if the absence of any challenge to the
confiscation and to the imposition penalty, both are
sustained.”
In this manner, appeal was allowed holding that demand
of duty was not legally sustainable and that part of the
Order-in-Original passed by the adjudicating authority was
set aside.
Not satisfied with the aforesaid outcome, the
respondent-Revenue challenged the order by filing appeal JUDGMENT
before the High Court of Bombay. 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.
The High Court, after discussing the respective
contentions in detail, accepted the submissions of the
Department and set aside the order of the CESTAT. The
rational given by the High Court is contained in Para 41 of
the impugned judgment which interprets the provisions of
Sub-section (2) of Section 125 of the Act as well reflects
the reasoning adopted by the High Court in support of its
view. We deem it appropriate to reproduce the same
hereinbelow:-
“41. We find it difficult to accept the above
interpretation of Section 125 (2). It is well
established in law that the taxing statutes have to be
construed strictly and unless the literal meaning leads
to anomaly or absurdity, the golden rule of literal
interpretation should be adhered to. Literal meaning
of Section 125(2) is that, whenever the goods liable to
be confiscated under the Customs Act are allowed to be redeemed by JUDGMENTgiving an option to pay fine in lieu of
confiscation imposed under Section 125(1), the owner of
such goods or the person referred to in section 125(1)
shall, in addition to the fine be liable to any duty
and charges payable in respect of such goods. In other
words, under Section 125(2), the duty payable on the
confiscated goods has to be paid on imposition of fine
in lieu of confiscation and it is immaterial whether
such option is exercised or not.”
As is clear from the above, according to the High
Court, whether option under Section 125(2) of the Act is
exercised or not, is immaterial.
In order to find out as to whether the High Court is
right or CESTAT's interpretation of the provisions of
Section 125(2) of the Act is correct, it would be necessary
to peep into the said provision along with Section 124 of
the Act. These two Sections are worded as follows:
“Section 124. Issue of show cause notice before
confiscation of goods, etc. - No order confiscating any
goods or imposing any penalty on any person shall be
made under this Chapter unless the owner of the goods
or such person-
(a) is given a notice in writing with the prior
approval of the officer of customs not below the rank
of an Assistant Commissioner of Customs, informing him
of the grounds on which it is proposed to confiscate
the goods or to impose a penalty;
(b) is given an opportunity of making a
representation in writing within such reasonable time
as may be specified in the notice against the grounds
of confiscation or imposition of penalty mentioned
therein; and
(c) is given a reasonable opportunity of being heard
in the matter:
Provided that the notice referred to in clause
(a) and the representation referred to in clause (b)
may at the request of the person concerned be oral.”
“Section 125. Option to pay fine in lieu of
confiscation.– (1) Whenever confiscation of any goods is authorised 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, 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.”
It may be seen from the bare reading of the aforesaid
Section 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 does not deal with payment of import duty at all.JUDGMENT
It is not in dispute that Show Cause Notice in the
instant case was issued under Section 124 of the Act. Once
such a Show Cause Notice was issued and as can be seen from
the proposed action which was contemplated in this provision
(as has been taken note of above), it was also confined to
confiscation of the imported machinery and imposition of
penalty. 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.
Notwithstanding the aforesaid position, as pointed out
above, the Department is taking shelter under the provisions
of sub-section (2) of Section 125 of the Act. However, on a
plain reading of the said provision, we are of the view that
such a provision would not apply in case where option to pay
fine in lieu of confiscation is not exercised by the
importer. 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 JUDGMENTcase, admittedly, such an option was not
exercised and the confiscated machinery was not redeemed by
the Institute. As a matter of fact, thus, no fine has been
paid.
Mr. K. Radhakrishnan, learned senior counsel appearing
for the Department, argued that even if an option was not
exercised, the moment it was stated in the order of the
Commissioner that fine is being “imposed”, sub-section (2)
would get attracted. We do not agree with the aforesaid
submission of Mr. Radhakrishnan. The order confiscating the
goods has already been reproduced above. Insofar as the
payment of fine is concerned, only option was given (and
that was only course of action which could be visualised
under section 125). The order categorically states that
“the importer “may” redeem the confiscated goods on payment
of fine of Rs.1,00,000 (Rs. One lakh only)”
Indubitably, unless an option is exercised, fine does
not become payable. Sub-section (2) of Section 125 uses the
expression “imposed” by stating “where any fine in lieu of
confiscation of goods is imposed”. In Black law dictionary
(Tenth edition), the word 'impose' is defined as “To levy or
exact (a tax or duty)”. Thus, it has to be a levy or exact
which is become payable and has to be paid. Likewise, the
word 'impose' is defined by Oxford English Dictionary, as
relevant for the purpose of the present case, as “Lay or inflict (a tax,JUDGMENTduty, charge, obligation, etc.) (on or
upon), esp. forcibly; compel compliance with; force
(oneself) on or upon the attention etc. of.”
In view of the above, we cannot agree with the
submission of Mr. Radhakrishnan that fine been “imposed” in
the present case. 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.
As already mentioned above, 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 is not that the Department is without any remedy.
We have gone through the provisions of notification No.
64/88 dated 01.03.1988. As pointed out above, importer
would be exempted from payment of import duty on hospital
equipment only when the conditions contained in the said JUDGMENT notification are satisfied. Some of the conditions, as
pointed out above, are to be fulfilled in future. If that
is not done and 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 also important to mention that under
certain circumstances mentioned in the notification, the
importer can be asked to execute a bond as well. In those
cases, action can be taken under the said bond when the
conditions contained therein are violated. Therefore, if
the Department wanted the Institute to pay the duty, which
may have become payable, it could have taken independent
action; de hors Section 124 of the Act, for payment of duty,
simultaneously with the notice under Section 124 of the Act
or by issuing composite notice for such an action. No
doubt, it could have waited for option to be exercised by
the Institute under Section 125(1) of the Act as well and in
that eventuality, duty would have automatically become
payable under Section 125(2) of the Act. But when such an
option was not exercised, it could have taken separate and
independent action by issuing Show Cause Notice to the
effect that the Institute had violated the terms of
exemption notification and therefore, was liable to pay
duty.
What is emphasised is 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. We, thus, are of
the opinion that the view taken by the CESTAT is correct and
the contrary view taken by the High Court in the impugned
judgment is not warranted on the interpretation of Section
125(2) of the Act.
High Court is not correct in observing that it is
immaterial whether option under Section 125(2) is exercised
or not. We would like to point out that the High Court has
referred to the judgment in the case of 'Commissioner of
Customs(Import), Mumbai v. Jagdish Cancer & Research Centre'
[2001 (6) SCC 483] in support of its conclusion. However,
on going through the said judgment, we find that the issue
with which we are concerned in the present case did not
occur for consideration before the court in that case at
all, as is clear from para 12 of the said judgment, which is
reproduced below: -
“12. Whenever an order confiscating the imported goods
is passed, an option, as provided under sub-section (1)
of Section 125 of the Customs Act, is to be given to
the person to pay fine in lieu of the confiscation and
on such an order being passed according to sub-section
(2) of Section 125, the person “shall in addition be
liable to any duty and charges payable in respect of JUDGMENT such goods”. A reading of sub-sections (1) and (2) of
Section 125 together makes it clear that liability to
pay duty arises under sub-section (2) in addition to
the fine under sub-section (1). Therefore, where an
order is passed for payment of customs duty along with
an order of imposition of fine in lieu of confiscation
of goods, it shall only be referable to sub-section (2)
to Section 125 of the Customs Act. It would not
attract Section 28(1) of the Customs Act which covers
the cases of duty not levied, short-levied or
erroneously refunded, etc. The order for payment of
duty under Section 125(2) would be an integral part of
proceedings relating to confiscation and consequential
orders thereon, on the ground as in this case that the
importer had violated the conditions of notification
subject to which exemption of goods was granted,
without attracting the provisions of Section 28(1) of
the Customs Act. A reference may beneficially be made
to a decision of this Court reported in Mohan Meakins
Ltd. v. CCE wherein it has been observed in para 6:
(SCC p.465)
“Therefore, there is a mandatory
requirement on the adjudicating officer before
permitting the redemption of goods, firstly, to
assess the market value of the goods and then to
levy any duty or charge payable on such goods
apart from the redemption fine that he intends to
levy under sub-section (1) of that section.”
In this view of the matter the objection raised
by the Centre that Section 28 of the Customs Act would
be attracted is not sustainable.”
Obviously, the argument raised in that case predicated
on Section 28(1) of the Customs Act and plea was that notice
was not issued by the “competent officer” and was also
beyond the time prescribed under Section 28(1). In that
context, the Court dealt with the provisions of Section
125(1) as well as 125(2) and observed that order of payment
of duty under Section 125(2) would be an integral part of
the proceedings relating to confiscation and consequential
orders thereon. This order, however, must be pursuant to a JUDGMENT
show cause notice and adjudication. The court was not
dealing with the question as to whether sub-section (2) of
Section 125 would be applicable even when option to pay fine
in lieu of confiscation is not exercised.
Accordingly, we allow the appeal and set aside the
order passed by the High Court. We make it clear that it
would still be open to the Department to take appropriate
independent action against the appellant for payment of
import duty, in case it is still within period of
limitation.
[ A.K. SIKRI ]
New Delhi; March 24, 2015.