Bombay High Court Hears Revenue Appeals on Duty Liability for Confiscated Medical Equipment Cleared Under Conditional Exemption Notification No. 64/88-Cus. Court Examines Whether Redemption of Goods is a Pre-Condition for Customs Duty Demand Under Section 125(2) of the Customs Act, 1962.

Customs appeal against order of the Customs, Excise & Service Tax Appellate Tribunal regarding liability to pay customs duty on imported medical equipment confiscated for violation of conditions of exemption notification, where the importer did not exercise the option to redeem.

Overturning the Tribunal’s decision that no customs duty was payable because the importers did not redeem the confiscated goods, and establishing that duty liability under Section 12 of the Customs Act survives even if the goods are not redeemed.

The Tribunal held that customs duty under Section 125(2) becomes payable only if the owner opts to redeem the confiscated goods, and since the importers in both cases did not exercise the option, no duty was recoverable. The revenue contended this interpretation was incorrect and that the liability to pay duty arose from the breach of the conditions of the exemption notification irrespective of redemption.

The Commissioner of Customs originally confiscated the goods and confirmed demands for customs duty and penalties. The Tribunal set aside the duty demand while upholding confiscation and penalty, relying on Gautam Diagnostic Centre V/s. Commissioner of Customs. The revenue appealed these orders.

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 under a conditional exemption notification? Whether the Tribunal is correct in law in holding that duty is payable only if the importer exercises option of redemption of confiscated goods? Whether the importer is liable to pay customs duty irrespective of the fact that it may not redeem the goods confiscated several years after their use? Whether the importers are liable to pay duty which has arisen not merely because the goods have been confiscated but also because the conditions of the notification have been violated? Whether 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?

Revenue: Under Section 12 of the Customs Act, duties of customs are leviable on all goods imported into India; the taxable event occurs when goods enter territorial waters; exemption under Section 25 is conditional and only suspends liability; if conditions are not fulfilled, full duty becomes payable; redemption under Section 125 is not a condition precedent to duty recovery; the importer must pay duty once breach is established. Respondents (Wockhardt and Grant Medical Foundation): Supported the Tribunal’s view that duty is payable only if redemption option is exercised; in Grant Medical case, they expressly declined to redeem the goods.

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. 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... 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/- ... 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... the liability to pay customs duty is only suspended or eclipsed.

1. Import of medical equipment by hospitals duty-free under Notification No.64/88-Cus dated 1/3/1988 after obtaining CDEC from DGHS. 2. Show cause notices issued for violation of conditions. 3. Commissioner’s orders confiscating goods, confirming duty demands and imposing penalties. 4. Appeals to Customs, Excise & Service Tax Appellate Tribunal. 5. Tribunal’s orders dated 13/2/2004 and 13/8/2004 set aside duty demands, upheld confiscation and penalty. 6. Revenue filed Customs Appeals No.22/2004 and 17/2005 before High Court. 7. High Court admitted appeals on substantial questions of law and heard the cases. 8. Oral judgment delivered on 28/4/2006; extract incomplete.

• Customs Act, 1962: 12, 25, 28(1), 111(o), 112(a), 124, 125(2), 130