Levy of Customs Duty in Cases Covered by Redemption Fine
by K. Padmanabhachar*
Cite as : (2003) 2 SCC (Jour) 25
Under Article 265 of the Constitution of India, every taxation legislation will have a charging section to levy tax or duty and a collection machinery to recover the taxes, duties so levied. The absence of either of them is likely to render the tax law unconstitutional. Under the Customs Act, 1962, Section 12 is the charging section and Section 28 spells out the collection machinery. In consonance with the scheme of our Constitution, the collection machinery will incorporate the elements of natural justice so that the rights of citizens are safeguarded. Under the scheme, it is common knowledge that recovery of customs duty in respect of even illegally imported goods should be made through the machinery provided under Section 28. This was so even in respect of matters more than five years old, as witnessed in the spate of actions taken by the Customs Departmenton imports made by hospitals under Notification No. 64/88. However, a recent decision of the Hon'ble Supreme Court (dated 2-8-2001) in the case of Commr. of Customs (Import) v. Jagdish Cancer & Research Centre1 has somewhat upset this impression and practice. The Hon'ble Court has held that in cases covered by redemption fine, Section 125(2) is itself the machinery for collecting customs duty. With great respect, this appears to be wrong as the following paragraphs will indicate.
It is under Section 12 of the Customs Act, 1962 that the customs duty on goods brought into India or exported out of India is charged. This section does not differentiate between goods legally imported and illegally imported. Therefore, Section 12 is also the charging section for goods illegally imported such as those covered by redemption fine. Section 28 is the only provision in the Act which provides for demand and collection of duty in cases where it has not been levied or has been short-levied or erroneously refunded. Thus Section 28 covers all types of cases. This section provides for issue of notice to the person concerned by which an opportunity is afforded to him to be heard. Section 28(1) provides for various safeguards to the citizen at the time of issue of such notice as also the time limitation. The time-limit is one year from the relevant date in generality of cases and in cases of fraud, collusion etc. the limit is up to five years. In terms of sub-section (2) the proper officer shall determine the amount of duty payable after considering the representation, if any, made by the person. Sub-section (3) defines the expression "relevant date" which is very crucial to the initiation of this notice. In essence, Section 28 incorporates the principles of audi alteram partem and the principles of limitation, which are very important aspects of the rule of law.
Section 125 of the Customs Act stands apart from this general scheme. It provides for levy of redemption fine in certain cases of confiscation, whereby the person may pay certain fine in lieu of confiscation and redeem his goods. In order to make it more punitive sub-section (2) was inserted from 1-4-1985. Sub-section (2) states that in addition to fine, the person shall pay customs duty and any other charges in respect of confiscated goods.
The Hon'ble Supreme Court has ruled in Jagdish Cancer & Research case1 that where an order is passed under Section 125(1) imposing a fine in lieu of confiscation of goods, levy of duty will be only under sub-section (2) of Section 125 and that such a case would not attract Section 28(1) of the Customs Act. In other words, the Hon'ble Supreme Court has construed Section 125(2) as collection machinery for such cases. This view is not in consonance with the understanding of the law in the context of its evolution and practice. Sub-section (2) of Section 125 was substituted with effect from 27-12-1985 with the present provisions.2
When sub-section (2) was introduced for the first time with effect from 1-4-1985, the words "for removal of doubts" preceded the provision. When it was substituted with effect from 27-12-1985 the words "for removal of doubts" were removed. Any student of law would agree that by removing the words "for removal of doubts", the character of the provision would not alter. Sub-section (2) was brought in to clear the doubt that arose on account of various conflicting court decisions with regard to dutiability of the goods covered by redemption fine.3
As stated already, the moment dutiable goods are imported into the taxable territories, duty becomes leviable by virtue of Section 12 of the Customs Act and this applies even to illegally/irregular imports. Therefore, even without sub-section (2) of Section 125, the goods covered by redemption fine would attract customs duty liability. To examine whether Section 125(2) laid down any new law when it was introduced, it would help us to go into the legal position that existed before the insertion of that provision. There have been a number of decisions to the effect that customs duty was payable in addition to the redemption fine. In particular, the decision of the Hon'ble High Court of Madras in the case of Collector of Customs v. H.S. Mehra4 is a comprehensive decision on this issue. In this case, a Single Judge had held that when goods are ordered to be confiscated and option is given for redemption, there will be no liability to duty. According to the Single Judge, the decision to confiscate but to give in lieu of it, an option to pay and clear the goods, must carry the same consequences in relation to levy of import duty as actual confiscation and vesting of the goods in the Government. Reversing this decision, the Appellate Bench held as follows:
"(15) The adjudgment of the confiscation on the ground that the import of the goods has been prohibited, can take place only later, that is after the goods are imported. If confiscation takes place, it will undoubtedly free the goods from liability to duty as the goods would belong to the Government. But if the confiscation is avoided, there is no principle by which the liability imposed by Section 20 will be discharged by the mere fact that a fine had been imposed under the provisions of Section 183. The levy of duty under Section 20 will have necessarily to be irrespective of the fact whether the importation is authorized or unauthorized. As a fiscal provision, that section has to be applied when once there has been an importation. If the import is unauthorized or prohibited, the other consequences prescribed by the statute might follow. That will be independent of the liability to duty imposed under the Act. To hold otherwise would lead to an anomaly, namely, that while goods lawfully imported into the country will suffer duty, those smuggled will escape it, the smuggler getting the advantage of not paying the duty, if he were to pay the fine under Section 183. This anomaly will all the more be apparent in the case of importation of prohibited goods under the Sea Customs Act, where the Authority is bound to give an option to the importer to pay fine in lieu of confiscation. That would certainly not have been the intention of the legislature."5
Thus, even earlier to the insertion of Section 125(2), the legal position was that despite the payment of fine in lieu of confiscation, liability to duty existed. This conclusively proves that the insertion of sub-section (2) under Section 125 did not bring in any new law. It only clarified the existing law to silence the other point of view canvassed in cases like the above. Therefore, this provision is declaratory in nature and is not in itself the charging section or collection machinery.
The nature of declaratory provisions came to be adverted by the Supreme Court6 quoting statement from Crawford's Statutory Construction which runs as follows:
"74. Declaratory statutesGenerally speaking, declaratory statutes can be divided into two clauses: (1) those declaratory of the common law, and (2) those declaring the meaning of an existing statute. Obviously, those declaratory of the common law should be construed according to the common law. Those of the second class are.... They closely resemble interpretation clauses, and their paramount purpose is to remove doubt as to the meaning of existing law, or to correct a construction considered erroneous by the legislature."7
It is now amply clear that Section 125(2) was enacted to set aside what Parliament considered as error in the interpretation of the legal position with regard to the duty liability of cases covered by Section 125. It is only an enactment to explain the already existing law. It cannot be assigned the status of a substantive provision which lays down the law.
In this view of the law the Supreme Court's decision in Jagdish Cancer and Research Centre1 to the effect that liability to pay duty arises under Section 125(2) does not appear to be correct. While coming to this conclusion, the Hon'ble Supreme Court has relied on the observation of the same Court in Mohan Meakins Ltd. v. CCE8 The Hon'ble Court cited a portion of para 6 of this decision wherein the Court had merely observed that there is mandatory requirement on the adjudicating officer before permitting the redemption of goods, firstly, to assess the market value of the goods and then to levy duty. However, the Court did not indicate therein that duty could be raised under Section 125(2) itself without recourse to Section 28(1). On the other hand, in para 7, the Hon'ble Court has observed as follows:
"That apart, it is rather surprising that the fresh proceeding under Section 111(m) is not initiated against the original importer in spite of the provisions of Section 28 of the Act."9
The allusion of the Hon'ble Court was to the facts of the case. The original importer was underlevied and that he should have been proceeded against under Section 28 which covers cases of underlevy. In this case, the original importer had redeemed the goods by paying redemption fine (Section 125). This makes it very clear that it was never the intention of the Hon'ble Court in Mohan Meakins case8 that Section 28 would not be applicable in cases covered by confiscation/redemption.
The effect of the decision in Jagdish Cancer and Research Centre case1 will be that persons coming under Section 125 i.e. those who seek to redeem goods by paying fine, will not be entitled to natural justice in the matter of levy of customs duty because duty will be levied without issue of notice and at any distance of time. The principle of audi alteram partem will be shut in such cases as also the principle underlying law of limitation. The sacred rights of the citizen under Section 28 would thus be obliterated if Section 125(2) were to oust Section 28. This would be contrary to the letter and spirit of our Constitution and also of the Customs Act, 1962.
The one and the only machinery for demand and collection of customs duty is Section 28 of the Customs Act and it is applicable to all kinds of cases arising under the Act. To say that Section 28 of the Act will not be applicable in some cases, would amount to amending or supplementing the law which is not the role of the courts. For the reasons discussed above, it is submitted with great respect that the Supreme Court's decision in the case of Jagdish Cancer and Research Centre1 requires to be reconsideredthe sooner, the better.
- (2001) 6 SCC 483
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- "125. Option to pay fine in lieu of confiscation
(2) Where any fine in lieu of confiscation of goods is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1) shall, in the addition, be liable to any duty and charges payable in respect of such goods."
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- See discussions in T.P. Mukherjee's Customs Law (7th Edn.), p. 598.
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- AIR 1964 Mad 504
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- Ibid., at p. 507, para 15.
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- See CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, at p. 505.
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- Crawford's Statutory Construction, at p. 107. See also Francis Bennion's Statutory Interpretation (2nd Edn.), at p. 105; Halsbury's Laws of England, Vol. 44(1), Statute IV, at p. 1233.
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- (2000) 1 SCC 462
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- Ibid., at p. 466, para 7.
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