A three-judge bench of the Delhi High Court the judgment dated 23.04.2019, passed in W.P. (C ) No. 1735 of 2016 titled Gillette India Ltd. vs. Commissioner of Customs and Ors, after interpreting the provisions of the Customs Act, 1962 ( “ the Act”) held that, once there is a failure to pay the redemption fine in lieu of confiscation as determined under Section 125 of the Act, within the time stipulated, the consequence is that the “confiscation” becomes absolute and the confiscated goods “vest” absolutely with the central government, and it is entitled to retain the entire amount recovered through auction sale of such “confiscated” goods.
The Hon’ble Court was seized of the issue in the writ petition filed by Gillette India Limited (“Gillette”), aggrieved by the auction process initiated by the Department of Customs (the “Department”) in respect of goods imported and warehoused by Gillette in a custom bonded warehouse, beyond the permissible period without payment of duty. The Department had confiscated the goods under Section 111 of the Act; and thereafter an option of redemption fine was given to Gillette under Section 125 of the Act in lieu of confiscation. Upon failure of payment within the prescribed period and no appeal having been filed against the order, the confiscation order had become final and the goods were sought to be auctioned off under the provisions of the Act. However, before the auction process, Gillette paid the redemption fine belatedly and sought return of the confiscated goods. The goods were ultimately auctioned off and the question remained as to the amount recovered in excess of the duty, interest, penalty and redemption fine, was to be paid to Gillette or retained by the Department.
In the writ petition arising out of the afore-stated events, the following issue was referred by a division bench to the three judge bench for determination:
“Notwithstanding that an importer may not have made the payment of the redemption fine duty interest and penalty within the time stipulated in the order of confiscation of imported goods passed under Section 125 read with Section 126 of the Customs Act, 1962 („Act), and which order has attained finality, but makes such payment belatedly but prior to the date of auction, can the Central Government retain the excess auction proceeds after adjusting the customs duty, interest, penalty and redemption fine or has such excess amount have to be returned paid to the owner of the goods?”
The Hon’ble three judge bench also examined the correctness of the decision of a division bench of the Delhi High Court in MMTC v Surjit Singh Kanda 196 (2013) DLT 725 (DB), which the Petitioner laid heavy reliance on to contend that the confiscation of the imported goods under the Act is done only as a means to recover its dues by the Department and does not vest unconditional right, title and interest in such confiscated goods in the Department. The Ld. Senior Counsel appearing on behalf of Gillette, Mr. Jayant Mehta argued that in view of the observations made in MMTC vs. Surjit Singh, the amount recovered by the Department, in excess of the duty, interest, penalty and redemption fine will have to be handed over to the importer, i.e. Gillette.
Mr. Sameer Jain, senior standing counsel appearing for the Department/ Respondent, argued that in light of the scheme of the Act, on a conjoint reading of Section 121 and 126, the confiscated goods vest absolutely with the Department. It was further argued under the Act, distinction is drawn between the sale/auction of “confiscated goods” and “non-confiscated goods”. Mr. Jain submitted that while in the latter case, the excess amount, after adjustment of penalty, interest and duty is to be returned to the owner of the goods under Section 150 of the Act, there is no such corresponding provision as regards the confiscated goods. This distinction, according to the Respondents, was deliberately drawn by the legislature in recognition of the concept of complete vesting of confiscated goods with the Central Government leaving it free to deal with such goods in any which way it pleased. Mr. Sameer Jain was assisted in the matter by Mr. Angad Sandhu and Ms. Supriya Rastogi.
The Hon’ble Court, traced the scheme of the Act laying emphasis on the language of Section 121 which stipulates that the entire sale proceeds of the smuggled goods are liable for confiscation; Section 125 which provides for option to the importer to pay fine in lieu of confiscation within a stipulated time and upon failure of payment, the confirmation of such “confiscation”; Section 126 which stipulates the consequence of confiscation i.e. the confiscated goods shall vest in the Central Government and Section 150 which deals with the procedure for sale of goods which are not confiscated and how those sale proceeds should be applied. The Hon’ble Court rejected the Petitioner’s contention that “prohibited goods” and “other goods” as contemplated under Section 125 of the Act are to be treated differently and held that upon failure to pay the redemption fine within the stipulated time the “transient nature of confiscation ends and it becomes absolute”, and the consequence is thereafter same for both type of goods, i.e. vesting of goods in the Central Government.
The Court further referred to various judgments to explain as to what happens when a property “vests” with the Government and placed reliance inter alia on Shewpujanrai Indrasanrai Ltd v. The Collector of Customs AIR 1958 SC 845; Municipal Corporation of Hyderabad v. P.N. Murthy (1987) 167 ITR 204 (SC) and Smt. Sulochana Chandrakant Galande v. Pune Municipal Transport (2010) 8 SCC 467; Dayawanti Punj v. New Delhi Municipal Committee (1982) 2 SCC 164 to rule in favour of department the “vesting” under Section 126 was absolute. The Hon’ble Court further concurred with the submissions of the Department in relation to the absolute right over sale proceeds and observed that:
“22. Section 150 of the Act makes it clear that the legislature has drawn a conscious distinction between what should happen to the sale proceeds when it comes to goods that are confiscated and those that are not. In other words, the goods that form the subject matter of Section 150 of the Act are not the improperly imported goods which are liable for confiscation on a collective reading of Sections 125 and 126. This differential treatment accorded to the two kinds of goods is based on an intelligible, rational criteria.”
The Hon’ble Court dismissed the writ petition to hold that the Petitioner was not entitled to sale proceeds obtained by the Department through auction that were in excess of duty, penalty and interest and summarized its findings as follows:
“30. To summarise the conclusions:
(a) Once there is a failure to pay the redemption fine in lieu of confiscation as determined under Section 125 of the Act, within the time stipulated, the consequence of the „confiscation‟ becoming absolute and the confiscated goods vesting absolutely in the central government inevitably has to follow in terms of Section 126 of the Act. The consequence is the same whether the goods are „prohibited goods‟ or „other goods‟.
(b) Sections 125 and 126 of the Act form one continuous scheme and are not to be read disjunctively. Once the vesting of the goods in the government is absolute, it would be inconsistent with the character of that vesting to contend that the Central Government can only recover through the sale of such goods the duty, penalty and interest and should return the excess to the owner/possessor of the goods.
(c) Therefore, this Court is unable to concur with the DB which decided MMTC v. Surjit Singh Kanda (supra) that on a collective reading of Sections 125 and 126 of the Act, the Customs Department is precluded from retaining the excess sale proceeds after adjustment of duty, penalty and interest.”
The Judgment has provided the much needed clarity over the issue and once again re-iterated that taxing statues are to be interpreted strictly. Once the goods are confiscated under the Act, the importers are required to either pay the redemption fine within the stipulated time or timely assail the confiscation order in appeal (Kailash Ribbon Factory Ltd. v. Commissioner of Customs &Central Excise 2002 (143) ELT 60 (Del) mandates that confiscated goods which are the subject matter of an appeal before the Tribunal or Court “shall not be auctioned or disposed of without prior written permission or order from the concerned Tribunal or the Court.”). Once the order of confiscation becomes final upon failure to act, the importer will have no right over the confiscated goods, which will entirely vest with the Government, including the right to auction off the goods and appropriate the entire sale proceeds.
For Gillette India Ltd. – Cyril Amarchand Mangaldas
For Commissioner of Customs & Ors. – Mr. Sameer Jain, Standing Counsel – CBEC along-with Advocates Mr. Angad Sandhu, Mr. Suvigya Awasthy, Ms. Anu Sura, Mr. Karan Valecha and Mr. Anant Gupta.
Read Judgment here:
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