Owner Of Goods Has To Pay Customs Duty Even After Confiscated Goods Are Redeemed After Payment Of Fine & Other Charges U/S 125 Customs Act: SC

The Supreme Court held that the owner of goods has the liability to pay customs duty even after confiscated goods are redeemed after payment of fine and other charges under Section 125 of the Customs Act, 1962.

The Court held thus in a civil appeal filed by a company which availed the benefit of exemption from payment of customs duty under a notification.

The two-Judge Bench comprising Justice P.S. Narasimha and Justice Aravind Kumar observed, “The above referred judicial interpretation has attained statutory recognition in 1985 when the Parliament introduced subsection (2) to Section 125 to clarify and declare that the owner of goods, in addition to payment of fine, shall also be liable to pay duty and other charges upon exercising the option to pay fine to redeem goods. Thus, the owner of goods has a liability to pay customs duty, even after confiscated goods are redeemed after payment of fine and other charges under Section 125 of the Act. This is the first principle.”

The Bench said that the Act must always be read as a whole and once the liability of confiscation is withdrawn after the option to pay fine is exercised and the goods are redeemed, it is natural for the goods to be subjected to duty.

Advocate Charanya Lakshmikumaran represented the appellant while Advocate V C Bharathi represented the respondents.

Brief Facts -

Between 2003-2007, the appellant company availed the benefit of exemption from payment of customs duty under a notification as per which self-propelled hydraulic piling rigs were to be utilised exclusively for the construction of roads, bridges, etc. for National Highways Authority of India (NHAI) and Public Works Department (PWD). When investigation revealed that the appellant violated the import conditions even before a show-cause notice was issued, the appellant deposited the amount and interest in 2007. Thereafter, a show-cause notice was issued in 2008 proposing confiscation under Section 111(o) with respect to some goods. The appellant filed an application under Section 127B of the Act before the Settlement Commission claiming that it did not violate any condition of the notification and further claimed that in order to avoid prolonged litigation, they had accepted the liability subject to further adjustments.

The Settlement Commission upheld the duty liability and directed it to be recovered. Following the decision of the Supreme Court in the case of Commr. of Customs (Import) v. Jagdish Cancer and Research Centre (2001) 6 SCC 483, it held that Section 28AB will also not be attracted as Section 28 is inapplicable. The interest deposited by the appellant was, therefore, directed to be refunded. The writ petitions filed by the Customs Department were allowed and the High Court distinguished Jagdish Cancer case and held that interest under Section 28AB is payable even for proceedings under Section 125 and remanded the matter to the Settlement Commission to calculate and recover interest under Section 28AB. Being aggrieved, the appellant approached the Apex Court.

The following three questions arose for consideration before the Supreme Court –

i) Whether there is a liability to pay customs duty when the confiscated goods are redeemed after payment of fine under Section 125 of the Customs Act, 1962?

ii) Whether, the liability to pay such duty will include the liability to pay interest on delayed payment under Section 28AB of the Act?

iii) What is the true and correct ratio of the decision in Jagdish Cancer case?

While considering the first question, the Court noted, “This issue is no more res integra. The uncertainty about the liability to impose and collect duties in confiscation proceedings was resolved in 1976 by a decision of this court in Union of India v. M/s Security and Finance (P) Ltd.10 while interpreting identical provisions, as they stood under the Sea Customs Act, 1878. … The power and the machinery provisions for imposition and collection of duty liability exist only under Section 12 and/or Section 28 and not under Section 125.”

The Court added that the customs duty obligation on once exempted goods, liable to be confiscated for violation of conditions, arises only after the option to redeem them is exercised under Section 125 and once the option is exercised, the acceptance is subject to the conditions specified in Section 125. It said that the primary condition is payment of fine in lieu of confiscation and thus, this duty obligation is inextricably connected to the option to redeem the confiscated goods, in other words, it is a precondition for redemption.

With regard to the second question, the Court enunciated, “The text of Section 125(2) clearly provides that, where any fine in lieu of confiscation of goods is imposed under sub-Section (1), the owner of such goods shall be ‘liable to any duty and charges payable with respect to such goods’. The sub-section provides that the liability to any duty and charges, that are payable, shall be paid in addition to the fine. We have held that Section 28 would come into operation for assessing and determining the duty and other charges payable with respect to goods redeemed under Section 125(2).”

The Court observed that once Section 28 applies for determination of duty obligation arising under Section 125(2), the interest on delayed payment of duty arises under Section 28AB and the said provision obligates payment of interest in addition to the duty. Hence, it answered this issue by holding that the interest liability under Section 28 AB is also attracted.

In respect of the third question, the Court elucidated, “The real contest in this case is about the correct ratio of the judgement in Jagdish Cancer case. According to the appellant, as this judgment holds that duty liability in confiscation proceedings arises because of Section 125 and not Section 28, there is no liability to pay interest on delayed payments under Section 28AB. The facts of this case are necessary to be recounted for a clear understanding of the ratio of this decision. In this case, the department issued a show cause notice under Section 124 of the Customs Act demanding customs duty and proposed confiscation under Section 111(o) and penalty under Section 112.”

The Court further emphasised that the payment of customs duty has not arisen either under Section 12 or Section 28, it has arisen because of Section 125(2) and therefore, a notice under Section 28 is not necessary. It remarked that this is how the judgment needs to be understood, and it is in this perspective that the court rejected the importer’s objection to the payment of duty.

“We conclude by holding that Jagdish Cancer case is not an authority for the proposition that when the liability to pay customs duty has occasioned under Section 125, the calculation, determination or the assessment of such duty cannot be made under Section 28”, it held.

Accordingly, the Apex Court disposed of the appeal and upheld the decision of the High Court.

Cause Title- M/s Navayuga Engineering Co. Ltd. v. Union of India & Anr. (Neutral Citation: 2024 INSC 547)

Appearance:

Appellant: Advocates Charanya Lakshmikumaran, Apeksha Mehta, Neha Choudhary, Falguni Gupta, Umang Motiyani, Aayush Agarwal, and AOR M. P. Devanath.

Respondents: Advocates V C Bharathi, Amritha Chandramoulli, S A Haseeb, Kritagya Kait, Udai Khanna, and AOR Mukesh Kumar Maroria.

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