-= : 1 : =- IN THE HIGH COURT OF JUDICATURE AT BOBBY IN THE HIGH COURT OF JUDICATURE AT BOBBY IN THE HIGH COURT OF JUDICATURE AT BOBBY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION CUSTOMS APPEAL NO.22 OF 2004 CUSTOMS APPEAL NO.22 OF 2004 CUSTOMS APPEAL NO.22 OF 2004 Commissioner of Customs (Import) Air Cargo Complex, Sahar, Andheri (E), Mumbai - 400 038. ..Appellant. V/s. M/s.Wockhardt Hospital & Heart Institute, Shariff Chambers, 14, Cinningham Road, Bangalore - 560 052. ..Respondent. Mr.S.S.Pakale with Mr.R.C.Master i/b. Dr.T.C. Kaushik for the appellant. Mr.E.P.Bharucha, senior counsel with Mr.M.P.Baxi & Mr. Gaurav Agarwal i/b. M/s.Harish Joshi & Co. for the respondent. AND AND AND CUSTOMS APPEAL NO.17 OF 2005 CUSTOMS APPEAL NO.17 OF 2005 CUSTOMS APPEAL NO.17 OF 2005 Commissioner of Customs (Import) Air Cargo Complex, Sahar, Andheri (E), Mumbai - 400 099. ..Appellant. V/s. M/s.Grant Medical Foundation, Ruby Hill Clinic, 40 Sasson Road, P.O. Box No.70, Pune - 411 001. ..Respondent. Mr.S.S.Pakale with Mr.R.C.Master i/b. Dr.T.C. Kaushik for the appellant. Mr.V.Shreedharan with Mr.Prakash Shah & Mr.Bharat Raichandani i/b. M/s. PDS Legal for the respondent. CORAM : CORAM : CORAM : R.M.LODHA AND R.M.LODHA AND R.M.LODHA AND J.P.DEVADHAR, JJ. J.P.DEVADHAR, JJ. J.P.DEVADHAR, JJ. -= : 2 : =- DATED : 28TH APRIL, 2006. DATED : 28TH APRIL, 2006. DATED : 28TH APRIL, 2006. ORAL JUDGMENT (PER J.P.DEVADHAR, J.) ORAL JUDGMENT (PER J.P.DEVADHAR, J.) ORAL JUDGMENT (PER J.P.DEVADHAR, J.) 1. These two appeals are filed by the revenue under Section 130 of the Customs Act, 1962. Since the issue involved in these appeals are common, both these appeals are heard together and disposed of by this common Judgment. 2. These appeals are filed against the orders passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Branch at Mumbai (‘the Tribunal’ for short) on 13/2/04 and 13/8/04 respectively. The question before the Tribunal was, where the imported goods cleared without payment of duty under a conditional exemption notification are confiscated with an option to pay fine in lieu of confiscation and if the option is not exercised by the owner, whether the revenue is entitled to recover customs duty payable on such goods ? The Tribunal held that on confiscation, the goods vest in the government and the liability to pay duty under section 125(2) of the Customs Act, 1962 would arise only if the owner opts to redeem the goods by paying the redemption fine. As the owners in these two cases have not opted to redeem the goods, the Tribunal held that the customs duty is not payable. -= : 3 : =- Challenging the aforesaid orders, the revenue has filed these appeals. 3. Undisputed facts in Customs Appeal No.22 of 2004 are that M/s.Wockhardt Hospital and Heart Institute (‘Institute’ for short) runs a hospital at Bangalore. Some time in the year 1990, the Institute imported a Cardiac Catherization Laboratory (known as Angiography system) with its spares / accessories valued at Rs.1,14,23,471/- and sought duty free clearance under notification NO.64/88-cus. dated 1/3/1988. 4. Notification No.64/88-cus dated 1/3/1988 issued under section 25 of the Customs Act, 1962 provided that the hospital equipments imported by the Charitable Hospitals certified by the Director General of Health Services, New Delhi (‘DGHS’ for short) will be exempt from payment of whole of the basic customs duty as well as whole of the additional duty subject to the condition that the Hospitals : (a) shall give free treatment, on an average, to at least 40% of all their outdoor patients. -= : 4 : =- (b) shall give free treatment to all indoor patients belonging to families with an income of less than Rs.500/- per month and to keep for this purpose at least 10% of all the hospital beds reserved for such patients and, (c) shall give treatment at reasonable charges, either on the basis of the income of all the patients concerned or otherwise, to patients other than those specified in clause (a) and (b) above. 5. The Institute obtained the requisite Customs Duty Exemption Certificate (‘CDEC’ for short) from the DGHS to the effect that it is a specified charitable hospital entitled to seek duty free clearance of the medical equipments under the above notification. Accordingly, the equipments imported by the Institute valued at Rs.1,14,23,471/- were assessed and cleared without payment of duty subject to the conditions set out in exemption notification No.64/88. 6. Subsequently, on finding that the Institute has failed to fulfill the conditions of the notification No.64/88-cus dated 1/3/88, a show cause -= : 5 : =- notice was issued to the Institute on 12/1/2000 under section 124 of the Customs Act, calling upon them to show cause as to why the above goods should not be confiscated under Section 111(o) and penalty under Section 112(a) of the Customs Act, 1962 should not be levied. The Institute filed its reply to the show cause notice. On adjudication, the Commissioner of Customs, by an order-in-original dated 11/7/2002 confiscated the goods under Section 111(o) with an option to redeem the said goods on payment of fine of Rs.1,00,000/- within 30 days of the said order. The Commissioner further directed the Institute to pay forthwith the customs duty amounting to Rs.1,65,24,050/- as the institute failed to discharge the continuing obligation under the notification No.64/88-cus during the material period. The Commissioner imposed penalty of Rs.25,000/- on the Institute under Section 112(a) of the Customs Act, 1962. 7. Being aggrieved by the aforesaid order, the Institute filed an appeal before the Tribunal. By the impugned order dated 13/2/2004, the Tribunal while upholding the confiscation and penalty, held that the duty demand cannot be sustained as the Institute has not exercised the option of redeeming the confiscated -= : 6 : =- goods. Hence, this appeal. 8. In Customs Appeal No.17 of 2005, M/s.Poona Medical Foundation, Pune, now Grant Medical Foundation (‘Foundation’ for short) had during the period from January, 1988 to February, 1994 imported medical equipments collectively valued at Rs.3,28,80,008/- and cleared the same without payment of duty under the conditional exemption notification No.64/88-cus by furnishing requisite certificate from the DGHS. 9. By a show cause notice dated 13/12/2000 issued under Section 124 of the Customs Act, the Assistant Commissioner of Customs, Mumbai called upon the Foundation to show cause as to why the medical equipments cleared without payment of duty should not be confiscated under Section 111(o) of the Customs Act, 1962 for violating the conditions of notification No.64/88-cus. The Foundation was further called upon to show cause as to why customs duty amounting to Rs.4,40,31,340/- should not be recovered under Section 28(1) and penalty should not be imposed on them under Section 112 of the Customs Act, 1962. On adjudication, the Commissioner of Customs, Air Cargo Complex, Sahar, Mumbai by an order-in-original dated 18/2/2002, ordered confiscation of the goods mentioned in the said show -= : 7 : =- cause notice with an option to redeem the said goods on payment of fine of Rs.50,000/-. The Commissioner further confirmed the demand of duty amounting to Rs.4,40,31,340/- and imposed penalty of Rs.10,000/- on the Foundation under Section 112(a) of the Customs Act, 1962. 10. The appeal filed by the Foundation was allowed by the Tribunal by its order dated 13/8/2004. In the said order, it is recorded that the advocate for the foundation has submitted that the owner’s were not interested in availing the option to redeem the goods and that the challenge to the confiscation is not being seriously pressed in the appeal and as the penalty imposed has already been paid, the appeal be disposed of accordingly. It is further recorded that the departmental representative contended that even though the owner does not exercise the option of redemption, he is not absolved of the liability to pay duty under section 125(2) of the Customs Act. However, the Tribunal following its decision in the case of Gautam Gautam Gautam Diagnostic Centre V/s. Commissioner of Customs (159 Diagnostic Centre V/s. Commissioner of Customs (159 Diagnostic Centre V/s. Commissioner of Customs (159 E.L.T. 678) E.L.T. 678) E.L.T. 678) held that on confiscation, the goods vest in the government and if the owner opts to redeem the goods, then only the customs duty becomes payable in addition to the redemption fine. The Tribunal, -= : 8 : =- accordingly held that in the present case the foundation has not exercised the option and, therefore, the revenue is not entitled to recover duty payable on such goods. Challenging the aforesaid order of the Tribunal, the revenue has filed the present appeal. 11. Customs Appeal No.22 of 2004 was admitted on 13/3/2006 on the following substantial questions of law : (1) Whether redemption of confiscated Goods by the Importer is a pre-requisite to payment of Demand Duty, when equipments are imported without payment of Customs duty ? (2) Whether the Tribunal is correct in law in holding that duty is payable only if the importer exercises option of redemption of confiscated goods ? 12. Customs Appeal No.17 of 2005 was admitted on 8/9/2005 on the following substantial questions of law: (1) Whether in the facts and circumstances of the case the importer is liable to pay -= : 9 : =- customs duty irrespective of the fact that it may not redeem the goods confiscated several years after their use ? (2) whether the importers are liable to pay duty which has arisen nor merely because the goods have been confiscated but also because the conditions of the notification have been violated ? (3) Whether in the facts and circumstances of the case the importer can escape from payment of customs duty which arose due to the violation of post import conditions simply by declining to redeem the goods after they have utilized them for their full life ? 13. Mr.Pakale, learned counsel appearing on behalf of the revenue submitted that under Section 12 of the Customs Act which is a charging section, duties of customs are leviable on all goods which are imported into India. Although the taxable event occurs the moment goods enter the territorial waters of India, it is open to the government to collect the duties of customs leviable under section 12 at any stage without disturbing the essence of tax or rational connection -= : 10 : =- between the taxes and the persons on whom it is imposed. He submitted that under section 25 of the Customs Act the Central Government is empowered in public interest to grant exemption either absolutely or subject to such conditions to be fulfilled before or after clearance as may be specified in the notification. Where the goods are allowed clearance without payment of duty under a notification subject to the fulfilment of the conditions after clearance, then, the liability to pay customs duty is only suspended or eclipsed. If the owner fails to comply with the conditions attached to the Notification, then the exemption becomes unavailable and full duty becomes payable under section 12 of the Customs Act. In this connection, he relied upon a Judgment of the Kerala High Court in the case of Aluminium Industries V/s. Aluminium Industries V/s. Aluminium Industries V/s. Union of India Union of India Union of India reported in 1984 (16) E.L T. 183 (Ker) 1984 (16) E.L T. 183 (Ker) 1984 (16) E.L T. 183 (Ker). 14. Mr.Pakale further submitted that in order to earn the benefits of the conditional exemption notification, the owner must fulfil the post clearance conditions attached to the said notification. Once it is established that the said conditions are not fulfilled, the exemption is not earned and consequently the liability to pay full customs duty under section 12 of the Customs Act becomes enforceable. In this -= : 11 : =- connection, Mr.Pakale relied upon the decision of the Apex Court in the case of Bombay Oil Industries Pvt. Bombay Oil Industries Pvt. Bombay Oil Industries Pvt. Ltd. V/s. Union of India Ltd. V/s. Union of India Ltd. V/s. Union of India reported in 1995 (77) E.L.T. 1995 (77) E.L.T. 1995 (77) E.L.T. 32 (S.C.) 32 (S.C.) 32 (S.C.), Union of India V/s. Ganesh Metal Processors Union of India V/s. Ganesh Metal Processors Union of India V/s. Ganesh Metal Processors Industries Industries Industries reported in 2003 (151) E.L.T. 21 (S.C.) and 2003 (151) E.L.T. 21 (S.C.) and 2003 (151) E.L.T. 21 (S.C.) and Commissioner of Customs V/s. Virgo Steels (141 ELT Commissioner of Customs V/s. Virgo Steels (141 ELT Commissioner of Customs V/s. Virgo Steels (141 ELT 598) 598) 598), the decision of the Karnataka High Court in the case of the Medical Relief Society V/s. Union of India Medical Relief Society V/s. Union of India Medical Relief Society V/s. Union of India (111 E.L.T. 327) (111 E.L.T. 327) (111 E.L.T. 327) and the Larger Bench decision of the Tribunal in the case of Bombay Hospital Trust V/s. Bombay Hospital Trust V/s. Bombay Hospital Trust V/s. Commissioner of Customs (188 E.L.T. 374). Commissioner of Customs (188 E.L.T. 374). Commissioner of Customs (188 E.L.T. 374). 15. Relying upon the decisions of the Apex Court in the case of Mediwell Hospital and Health Care Pvt. Mediwell Hospital and Health Care Pvt. Mediwell Hospital and Health Care Pvt. Ltd. V/s. Union of India Ltd. V/s. Union of India Ltd. V/s. Union of India reported in 1997(89) E.L.T. 1997(89) E.L.T. 1997(89) E.L.T. 425 (S.C.) 425 (S.C.) 425 (S.C.) and Commissioner of Customs V/s. Jagdish Commissioner of Customs V/s. Jagdish Commissioner of Customs V/s. Jagdish Cancer and Research Centre Cancer and Research Centre Cancer and Research Centre reported in 2001(132) E.L.T. 2001(132) E.L.T. 2001(132) E.L.T. 257 (S.C.) 257 (S.C.) 257 (S.C.), Mr.Pakale submitted that where the objective of the exemption notification is not achieved and the obligations attached to the exemption notification are not discharged, then, the Central Government is entitled to enforce realisation of the customs duty from the owner. 16. Mr.Pakale further submitted that under section 125(2) of the Customs Act, the liability to pay customs -= : 12 : =- duty in addition to the redemption fine is an independent provision and, therefore, even if the owner declines to redeem the confiscated goods the liability to pay customs duty on the confiscated goods continues. In this connection, Mr.Pakale relied upon the decision of the Apex Court in the case of Union of India V/s. Union of India V/s. Union of India V/s. Security & Finance (P) Ltd. (A.I.R.1 1975 S.C. 2288) Security & Finance (P) Ltd. (A.I.R.1 1975 S.C. 2288) Security & Finance (P) Ltd. (A.I.R.1 1975 S.C. 2288) and the decision of the Delhi High Court in the case of Punjab Dairy Development Corporation Ltd. V/s. Punjab Dairy Development Corporation Ltd. V/s. Punjab Dairy Development Corporation Ltd. V/s. Union of India Union of India Union of India reported in 1987 (30) E.L.T. 241 1987 (30) E.L.T. 241 1987 (30) E.L.T. 241 (Delhi) (Delhi) (Delhi). Accordingly, Mr.Pakale submitted that the Tribunal was in error in holding that even after committing breach of the conditions of the notification the owners are not liable to pay customs duty on the ground that the owners have not opted to redeem the goods. 17. Mr.Bharucha, learned senior counsel appearing on behalf of the institute submitted that in the instant case, the show cause notice issued on 12/1/2000 did not seek to recover duty but sought to confiscate the goods and to levy penalty. Therefore, the adjudication order passed by the Commissioner of Customs in demanding duty is beyond the show cause notice and hence bad in law. -= : 13 : =- 18. Mr.Bharucha submitted that the duty under the Customs Act, can be recovered either under section 28 or under section 125 or under the exemption Notification issued under section 25 by specifically providing therein that the duty will be enforced if the conditions of the notification are not fulfilled. In the present case, the duty is not demanded under section 28 because under that section duty could not be demanded beyond the period of five years from the relevant date. Similarly, duty is not claimed under the exemption notification 64/88 because it does not provide for recovery of duty if the conditions attached to the notification are not fulfilled. Mr.Bharucha referred to various exemption notifications issued under the Customs Act, wherein it is specifically provided that the customs duty shall be payable if the conditions of the notification are not fulfilled. In the present case, exemption notification No.64 of 1988 does not contain any clause for recovery of duty if the conditions attached to the notification are violated and hence enforcement of the duty under the exemption notification does not arise. 19. Although section 125(2) of the Customs Act makes the owner liable to pay duty in addition to fine in lieu of confiscation imposed under section 125(1), -= : 14 : =- the counsel submitted that the said section has no application in the present case. The submission is that where the goods confiscated under Section 111(o) are permitted clearance on payment of fine in lieu of confiscation imposed under section 125(1) then duty as also the fine becomes payable under section 125(2), only if the owner exercises the option to redeem the confiscated goods and not otherwise. 20. According to Mr.Bharucha, section 125(1) deals with three types of goods which can be confiscated, namely (a) goods, imports or exports of which is prohibited and in respect whereof no option of payment of fine in lieu of confiscation has been given; (b) goods, imports or exports of which is prohibited in respect whereof an option of payment of fine in lieu of confiscation has been given and (c) goods, liable to confiscation under any other provisions of the Customs Act in respect whereof an option to pay fine in lieu of confiscation is given. 21. Mr.Bharucha submitted that if it is held that the liability to pay duty under section 125(2) arises, the moment an order is made with an option to pay fine in lieu of confiscation even if the option is not exercised, then, it would lead to palpably absurd -= : 15 : =- results. For example, Mr.Bharucha submits, that where noxious drugs like Cocaine or Heroin are imported, the same being prohibited are liable to be confiscated absolutely and such goods cannot be released on payment of fine. Thus, owner of absolutely confiscated goods will not be liable to pay duty under section 125(2). On the other hand, if the goods imported are not per se noxious but are subject to restrictions, like import of special categories of steel, then, such goods are liable to be released on payment of fine in lieu of confiscation. If the contention of the revenue is accepted, the owner whose goods are confiscated absolutely would not be liable to pay duty, whereas, the owner whose goods are confiscated with an option to pay fine in lieu of confiscation would be liable to pay duty, even if the option is not exercised and the goods continue to remain as confiscated goods. He submits that if the contention of the revenue is accepted, then, the option given under section 125(1) would be meaningless. He submits that the word "in addition" in section 125(2) clearly suggests that the duty has to be paid along with the redemption fine. Redemption fine becomes payable only if the owner exercises the option to redeem the goods and, therefore, it must be held that in cases where the option is not exercised, neither the fine nor the duty is payable. -= : 16 : =- 22. Relying upon various decisions of the Tribunal, Mr.Bharucha submitted that section 125(2) has been interpreted in several cases for more than a decade and in all those cases the Tribunal has consistently held that the liability to pay customs duty under section 125(2) arises only if the owner opts to redeem the goods on payment of redemption fine. Consistent with the earlier decisions, the Tribunal in the present case has held that the duty is not payable as the option is not exercised by the owner of the goods. 23. Relying upon an unreported Judgment of this Court in the case of Union of India V/s. Sir Harkisondas Marjorams Hospital (O.S. Writ Petition No. 388 of 2005 decided on 13th April, 2005), counsel for the importer submitted that this Court has held that if the owner is not interested in redeeming the goods, then the Customs Act does not create any liability to pay the customs duty. Accordingly, it is submitted that in view of the aforesaid binding decision of this Court, the contentions of the revenue cannot be accepted. 24. Dealing with the arguments advanced on behalf -= : 17 : =- the revenue, Mr.Bharucha submitted that Section 12 is a charging section and it does not authorise recovery of duties. The revenue can recover duty only under the machinery sections provided under the Act and not under the charging section 12. Relying upon the decision of the Apex Court in the case of Somaiya Organics V/s. Somaiya Organics V/s. Somaiya Organics V/s. State of U.P. State of U.P. State of U.P. reported in 2001(130) E.L.T.3 (S.C.) 2001(130) E.L.T.3 (S.C.) 2001(130) E.L.T.3 (S.C.), Mr.Bharucha submitted that under the taxing statutes the word "levy" and "collection" are not synonymous. If section 12 is construed to encompass within itself the provision for recovery of customs duty it will render the provisions of section 28 and section 125 of the Customs Act otiose or redundant. If it is held that section 12 empowers the revenue to recover duty, then it will render the limitation for recovery of duty prescribed under section 28 of the Customs Act nugatory. He submitted that it is well established in law that while interpreting a statute, effort should be made to give effect to each and every word used by the legislature. Relying upon the Judgment of the Apex Court in the case of Nathidevi V/s. Radha Gupta Nathidevi V/s. Radha Gupta Nathidevi V/s. Radha Gupta reported in (2005) 2 S.C.C. 271 (2005) 2 S.C.C. 271 (2005) 2 S.C.C. 271, Mr.Bharucha submitted that a construction which attributes redundancy to the words in the statute cannot be accepted. In the present case, the interpretation given to section 12 by the revenue if accepted, it will render sections 28 and -= : 18 : =- 125(2) completely nugatory and, therefore, such a construction must be avoided. 25. Mr.Bharucha submitted that section 12 provides for levy of customs duty on import of goods and not on the owner or the importer. Under Section 126 of the Customs Act on confiscation the property in goods vest in the Central Government. In such a case, claiming duty under section 12 on the goods which are vested in the Central Government does not arise at all. This is because the taxable event in terms of section 12 is the import into or export of goods from India. 26. Dealing with the decision of the Apex Court in the case of Mediwell Hospital (supra), Mr.Bharucha submitted that the said decision has been expressly overruled by the Apex Court in the case of Faridabad CT Faridabad CT Faridabad CT Scan V/s. D.G.Health Scan V/s. D.G.Health Scan V/s. D.G.Health reported in 1997(95) E.L.T. 161 1997(95) E.L.T. 161 1997(95) E.L.T. 161 (S.C.) (S.C.) (S.C.) and in the case of Shri Sathya Sai Institute vs. Shri Sathya Sai Institute vs. Shri Sathya Sai Institute vs. Union of India Union of India Union of India reported in 2003(158) E.L.T.675 (S.C.) 2003(158) E.L.T.675 (S.C.) 2003(158) E.L.T.675 (S.C.) and, therefore, it is not open to the revenue to rely upon the said Judgment. He submitted that even otherwise, the ratio laid down in the Mediwell Hospital’s case was with reference to the availability of the exemption notification 64/88 to a Diagnostic Centre run by a private individual purely on a -= : 19 : =- commercial basis and not with reference to the duty