Whether redemption fine can be imposed where the goods were neither available for confiscation nor cleared under bond / undertaking?

Case:COMMISSIONER OF CUSTOMS, MUMBAI VERSUS RISHI SHIP BREAKERS

Citation:2009-TIOL-388-CESTAT-MUM-LB

Brief Fact:The appellants in this appeal were engaged in the manufacture of MS/CTD bars falling under Chapter 72 of the Schedule to the Central Excise Tariff Act. From the results of investigations into their operations, it appeared that they had been removing the excisable goods clandestinely without payment of Central Excise duty. In fact, the Factory Manager, in his statement dated 21/02/2006 recorded under Section 14 of the Central Excise Act, confessed to clandestine removal of MS bars of different sizes valued at Rs.2,04,679/- to one M/s. Hari Om Steels on 06/02/2006. He also volunteered to pay duty on such goods. In a subsequent show-cause notice, the jurisdictional Assistant Commissioner proposed:

to demand duty of Rs. 33,404/- from the appellants under Section 11A(1) of the Central Excise Act and appropriate the amount already paid, towards such demand;
to confiscate the above goods under Rule 25 of the Central Excise Rules, 2002; and
to impose penalty on the party under Section 11AC of the Act read with Rule 25 ibid.

The above proposals were contested by the party in their reply to the show cause notice. They resisted confiscation on the ground that the goods were not physically available for confiscation. It was submitted that, for confiscation of any goods, it must be in the department's possession or must have been released at the request of the assessee against bond supported by bank guarantee. On this basis, the assessee contended that the goods in question could not be confiscated and, for that matter, redemption fine could not be imposed. These and other arguments of the party were not acceptable to the adjudicating authority, with the result that confiscation of the goods was ordered under Rule 25(1)(d) of the Central Excise Rules, 2002 and a fine of Rs.40,000/- was imposed in lieu of confiscation, apart from confirmation of the demand of duty and imposition of penalty equal to duty. The appeal filed by the party against the Assistant Commissioner's order came to be dismissed by the Commissioner

A learned Member of the Tribunal, sitting singly, considered the appeal and found a conflict of decisions on the question whether goods which were not available for confiscation (except where the goods were provisionally released after seizure) could be confiscated and redemption fine imposed in lieu of confiscation. That issue was referred to larger bench and accordingly the issue is before us. The issue as framed by the referring bench reads as under:

"Whether the goods can be confiscated and redemption fine imposed even if they are not available for confiscation (excluding the cases where the goods are initially seized and provisionally released) as held by the Tribunal in the case of Venus Enterprises Vs. Commissioner 2006 (199) ELT 662 (Tri.- Chennai) or the same cannot be confiscated and fine in lieu of confiscation cannot be imposed as held by the CESTAT in the case of Ram Khazana Electronic 2003 (156) ELT 122 (Tri.-Del), Shiwalya Spinning & Weaving Mills (P) Ltd 2002 (146) ELT 610 (Tri.-Del.), Prudential Pharmaceuticals Ltd. 2001 (136) ELT 1057 (Tri. -Chennai)"

Facts of the Customs Appeal:

(i) The respondent in this appeal of the department imported an old/used vessel along with 193.685 MTs of Remnant Oil on Board (ROB) comprising 87.345 MTs, of Fuel Oil, 98 MTs of Diesel Oil and 8.3 MTs of Lube Oil, for breaking / scrapping. They filed a Bill of Entry on 31/05/2002 for clearance of the goods totally valued at over Rs.4.7 crores (CIF). The ship with spares and other machinery / accessories were assessed under CTH 8908.00 and the ROB was assessed under CTH 2710.90 as declared by the importer. Upon payment of the duty assessed, the vessel was allowed out of customs charge and permission for scrapping it was granted. Later on, a tanker-lorry carrying ROB from the above ship was detained by the customs authorities and representative samples of Fuel Oil and Diesel Oil were drawn in the presence of the importer's representative and CHA. The test report on the sample of Diesel Oil matched the importer's declaration. But the test report on the sample of Fuel Oil stated that, in view of its composition (Ash content of 1.10/0 by weight, Sediment of 1.1% by weight and Water content of 33.3% by weight), it could be considered as "off specification material / waste oil". The explanation given by the party vis-a-vis the test report on what was declared by them as Fuel Oil did not convince the customs authorities. After recording statements of the importer's authorized signatory and conducting allied enquiries, the department issued a show-cause notice to them proposing inter alia to confiscate 87.345 MTs of what was declared as fuel oil, under Section 111(d) and (m) of the Customs Act, 1962. This and other proposals were contested. In their written submissions, the importer contended inter alia that, as the Bill of Entry had been assessed and out-of-charge given under Section 47 of the Customs Act, it was not open to the department to issue show-cause notice for confiscation of the goods under Section 124 of the Act. These and other arguments were repelled by the adjudicating authority, which ordered confiscation of the goods under Section 111(d) and (m) of the Customs Act and also imposed a fine of Rs. 1 lakh under Section 125 of the Act in lieu of confiscation. The adjudicating authority also imposed a penalty on the importer under Section 112(a) of the Act. Against the order of adjudication, the party preferred appeal to the Commissioner (Appeals) and the latter set aside the confiscation of the goods after observing that it was far- fetched on the part of the original authority to hold that the importer had misdeclared waste oil as fuel oil. The appellate authority, further, reduced the quantum of penalty. Hence the Revenue's appeal.

(ii) The learned Vice President of the Tribunal, sitting singly, considered the appeal and noted that the question had arisen as to whether any redemption fine could be imposed where the goods were not available for confiscation. On this issue, conflicting decisions were also noticed. The decision in Venus Enterprises Vs. Commissioner of Customs, Chennai 2006 (199) ELT 661 was that fine could be imposed under Section 125 of the Customs Act in lieu of confiscation of goods even if the goods were not available for confiscation. Contra view was found in Chinku Exports Vs. Commissioner of Customs, Calcutta 1999 (33) RLT 395 = 2002-TIOL431-CESTAT-DEO, Associate Marketing Services Vs. Commissioner of Customs (Airport), Chennai 2006 (195) ELT 287 = (2005-TIOL-1502-CESTAT-MAN etc. Consequently the issue was referred to larger bench and the same is before us.

Respondent Contention:The learned counsel for the respondent in the Customs Appeal submitted that the issue had already been settled in the case of Commissioner of Customs, Amritsar Vs. Raja Impex (P) Ltd. 2008 (229) ELT 185 (P&H) = (20013-TI0L-280-HC-P-H-CUS) . The respondent in that case had imported a consignment of used computer monitors valued at US $ 5 per piece and they filed a Bill of Entry for its clearance. The department, on the basis of certain data collected by them, found the declared value to be very low. According to them, the CIF value should be US $ 15 per piece. On this basis, it was alleged that the importer had misdeclared the value of the goods. The show-cause notice containing this allegation proposed to confiscate the goods under Section 111 of the Customs Act as also to impose penalty on the importer under Section 112 of the Act. After hearing the party, the adjudicating authority confiscated the goods and also imposed a fine of Rs.60,000/- in lieu of confiscation. It also imposed a penalty on the importer. The party preferred appeal to the Commissioner (Appeals) and the latter set aside the redemption fine in view of the Supreme Court's judgment in Weston Components Ltd. Vs. Commissioner of Customs, New Delhi 2000 (115) ELT 278 (SC) = (2002-noL-176-sc-cus) and reduced the quantum of penalty. Aggrieved by the appellate Commissioner's decision, the department went in appeal, which was dismissed by the Tribunal. The department approached the High Court in appeal against the Tribunal's decision. One of the questions of law raised in that appeal was whether redemption fine under Section 125 of the Act could be imposed where the goods were neither available for confiscation nor cleared under bond / undertaking. The Hon'ble High Court, after considering the apex Court's judgment in Weston Components case (supra), held that any redemption fine could not be imposed in the absence of the goods which had already been released by the customs authorities to the importer without execution of any bond / undertaking by the latter. Conversely, it was held that, where the goods were released under bond / undertaking, they could be confiscated as if the goods were available and consequently redemption fine in lieu of confiscation could also be imposed.

The learned counsel also referred to the Tribunal's decision in Chinku Exports case wherein the redemption fine imposed by the Commissioner of Customs was set aside inasmuch as the goods were not available for confiscation as the same had been allowed to be cleared without any bond or other security required to be furnished by the party. The learned counsel also pointed out that the Civil Appeal filed by the department against the Tribunal's decision was dismissed by the Supreme Court vide Commissioner of Customs, Chennai Vs. Chinku Exports 2005 (184) ELT A36 (SC). He also claimed support from Prudential Pharmaceuticals Ltd. Vs. Commissioner of Customs, Chennai 2001 (136) ELT 1057 (Tn. - Chennai), Ram Khazana Electronic Vs. Commissioner of Customs, Air Cargo, Jaipur 2003 (156) ELT 122 (Tn. -Del.), Shiwalya Spinning & Weaving Mills (P) Ltd. Vs. Commissioner of Customs, Amritsar 2002 (146) ELT 610 (Tn. -Del.), Vikas Chandra Vs. Commissioner of Customs, Chennai 2003 (158) ELT 316 (Tn. - Chennai) and CC, Airport, Mumbai Vs. Kiran Jewels 2008 (87) RLT 37 (CESTAT-Mum.).

Reasoning of Judgment:Learned Jt.CDR argued that the view taken by the Tribunal in the case of Venus Enterprises (supra) to the effect that fine was imposable under Section 125 of the Customs Act even if the goods were not available for confiscation, was upheld by the Madras High Court as per the judgment dated 20/02/2006 in CMA No. 594 of 2006. He also claimed support from the Supreme Court's judgment in Harbans La/ Vs. Collector of Central Excise & Customs 1993 (67) ELT 20 (SC), wherein it had been held that Sections 110 and 124 of the Customs Act were independent, distinct and exclusive of each other resulting in the survival of the proceedings under Section 124 even though the seized goods might have to be returned or already stood returned in terms of Section 110 after the expiry of the permissible period of seizure. Reliance was also placed on the Bombay High Court's judgment in Commissioner of Customs Vs. Wockhardt Hospital & Heart Institute 2006 (200) ELT 15 (Bom) = (2006-TroL-115-Hc-mum-cus) wherein, in the context of considering the recoverability of duty from a hospital in respect of medical equipment confiscated under Section 111 (o) of the Customs Act with option for redemption of the goods on payment of fine in lieu of confiscation under Section 125 of the Act on the ground of breach of conditions of Customs Notification No.64/88, the Hon'ble High Court held that the Revenue was entitled to recover such duty whether or not the owner of the goods exercised the option to redeem the goods.

In his rejoinder, the learned counsel pointed out that the Special Leave Petition filed by M/s. Venus Enterprises against the Madras High Court's judgment had been admitted by the Supreme Court. At this stage, the learned JCDR informed us that the SLP was dismissed. We have found, on record, a copy of the Supreme Court's order dated 03/01 /2007 dismissing the SLP.

We have given careful consideration to the submissions. As rightly pointed by the learned counsel, the Hon'ble High Court of Punjab & Haryana, in Raja Impex case (supra), has rendered decision on identical issue. One of the substantial questions of law placed before the High Court by the department was whether redemption fine under Section 125 of the Customs Act could be imposed where the goods were neither available for confiscation nor cleared under bond / undertaking. The Hon'ble High Court followed the ratio of the apex Court's judgment in Weston Components case and held that, as the goods in question had been allowed to be cleared without execution of any bond / undertaking by the importer, no redemption fine could be imposed under Section 125 of the Customs Act in lieu of confiscation. Reproduced below is the relevant part of the High Court's judgment.

"12. It may also be noticed here that in the case of M/s. Weston Components Ltd. Vs Commissioner of Customs, New Delhi (supra), the goods were released to the assessee on an application made by it an on the execution of a bond by the assessee and in those circumstances, the Hon'ble Apex Court held that the mere fact that the goods were released on the bond being executed would not take away the power of custom authority to levy redemption fine. A reading of the judgment / order of the Hon'ble Apex Court in M/s. Weston Components Ltd. Vs Commissioner of Customs, New Delhi (supra), would show that the Apex Court has taken the view that redemption fine can be imposed even in the absence of the goods as the goods were released to the appellant on an application made by it and on the appellant executing a bond. Since the goods were released on a bond the position is as if the goods were available. The ratio of the above decision cannot be understood that in all cases the goods were permitted to be cleared initially and later proceedings were taken for under-valuation or other irregularity, even then redemption fine could be imposed. We are, therefore, not inclined to accept the contention raised by the appellant on this issue and set aside the redemption fine.

13. The reliance of learned counsel for the revenue upon the provisions of Section 125 of the Act is also misconceived. Section 125 of the Act is applicable only in those cases which have been cleared by the concerned authorities subject to furnishing undertaking / bond etc. However in the present case, admittedly, the goods were cleared by the respondent-authorities without execution of any bond / undertaking by the assessee. Thus, in view of the fact and circumstances of the case, we find no error in the impugned orders. No substantial question of law arises for our determination in the present appeal and the same is hereby dismissed." (emphasis supplied.)

We have also particularly noted a decision of the Tribunal (cited by the learned advocate) which stands upheld by the Supreme Court. In Chinku Exports case, the Tribunal had held the

Redemption-fine-related issue against the Revenue in para (10) of its order, reproduced below:

“10. In view of the aforesaid findings and analysis, we are of the considered opinion that none of these charges upheld in the order impugned are in fact sustained by our analysis.in this connection we are also surprised to find that the redemption fine of Ts. 2.89 lakhs has been imposed when the goods were not available for confiscation, the same having been exported many years ago. Neither was any bond with a security in any format available with the Department to be enforced. In view of this it is clear that the redemption fine imposed was totally outside the purview of legal provisions in this regard. Therefore, we set aside the order impugned and allow the appeal with consequential relief as per law.”

Dismissing the department’s Civil Appeal filed against the above order of the Tribunal, the apex Court ordered vide 2005(184) ELT A36 (SC) as under:

“We see no reason to interfere with the impugned order. The appeal is dismissed.” (emphasis supplied)

It the result, the view taken by the Tribunal in Chinku Exports case stands affirmed by the apex Court and consequently the similar view taken by the P & H High Court in Raja Impex case is a binding precedent while the contra decision of the Madras High Court in Venus Enterprises case ceases to be goods law on the point. It may be noted contextually that the dismissal, by the apex Court of the SLP filed by M/s. Venus Enterprises did not have the effect of enhancing the precedent value of the High Court’s decision in that case.

We have not come across any binding decision contrary to Raja Impex (supra). We find that, in Wockhardt Hospital & Heart Institute’s case (supra) cited by the learned Jt. CDR, the above issue was not among the questions of law which arose for consideration of the Bombay High Court. The case of Harbans Lal (supra) considered by the Hon’ble Supreme Court is no different.

In the result, the issue refered to us in either of the two appeals is held against the Revenue in light of the High Court’s decision in Raja Impex case.

Decision:Appeal dismissed.

Comment:The crux of this case is that any redemption fine could not be imposed in the absence of the goods which had already been released by the customs authority to the importer without executing of bond/ undertakings vide apex Court’s Judgment in Weston Components case (supra). Hence, in the way, no redemption fine and penalty are imposed on respondent.

This landmark judgement has settled the issue. To impose the redemption fine, either the goods should be available or they must have been released on request of assessee on execution of bond/undertaking. In other case where the goods are not available and they are not released under undertaking/bond, redemption fine cannot be imposed.

Prepared by: Hushen Ganodwala

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