Central Government entitled to retain excess auction sale proceeds of confiscated goods u/s 125 of the Customs Act, 1962 and is under no obligation to refund the excess amount to the importer.
ABCAUS Case Law Citation:
ABCAUS 2891 (2019) (04) HC
Important Case Laws Cited/relied upon by the parties
MMTC v Surjit Singh Kanda 196 (2013) DLT 725 (DB
Bharat Sanchar Nigam Limited v. ACIT Manu/ID/0462/2016,
Shewpujanrai Indrasanrai Ltd vs The Collector of Customs AIR 1958 SC 845
Fruit & Vegetable Merchants Union v. Delhi Improvement Trust AIR 1954 SC 344,
Shabir Ahmed Abdul Rehman v Union of India 2009 (235) ELT402 (Bom)
Kailash Ribbon Factory Ltd. v. The Commr. of Customs & Central, Delhi 2002 (143) ELT 60 (Del)
In the instant case, the following question had been referred to the larger Bench of the Hon’ble High Court for decision:
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 Petitioner had imported goods against which orders were passed by the Department confiscating it and giving an option to the Petitioner to redeem the goods on paying a redemption fine under Section 125 of the Customs Act, 1962 (the Act) within 30 days.
The Petitioner had paid the duty, penalty, interest and redemption fine by a challan with delay of 74- 100 days. However, at the time of the hearing, the goods confiscated had already been auctioned/ sold to the auction purchaser. However, the demand draft (DD) received from the auction purchaser was yet to be encashed and the goods were still lying with the Department.
The principal contention of the Petitioner was that although the goods confiscated might have been vested with the Central Government under Section 126 of the Act, that provision has to be read with Section 125 of the Act which gives the Department the right to recover such fine as the officer in charge of adjudging may think fit in lieu of confiscation of goods.
It was contended that the Department could not appropriate the goods and if the importer had already made payment of the duty, interest, penalty and redemption fine (although belatedly but prior to the date of auction), the Department could not insist on recovering anything more by way of auction sale.
It was submitted that even if an auction sale of the good imported thereunder had taken place, 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.
On the contrary, the Department contended that there is a distinction drawn in the Act between the sale/auction of „confiscated goods‟ and „non-confiscated goods‟. While in the latter, the excess amount, after adjustment of penalty, interest and duty is to be returned to the owner of the goods, there is no such corresponding provision as regards the confiscated goods.
It was submitted that the said distinction 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.
The Hon’ble High Court observed that 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.
The Hon’ble High Court opined that this differential treatment accorded to the two kinds of goods is based on an intelligible, rational criteria. The objective of Section 150 of the Act is for the government not to recover more than the duty, penalty and interest. This explains the requirement under Section 150 (2) for the ‘balance, if any’ after adjusting the sums spelt out in clauses (a) to (e) thereunder, to be “paid to the owner of the goods.”
The Hon’ble High Court stated that It is trite that the rule of strict interpretation would apply to taxation statutes and there is no equity in tax.
The Hon’ble High Court noted that there are large number of decisions of the Hon’ble Supreme Court that explain what happens when a property “vests” in the government. The Court also noted the view of other Hon’ble High Courts on the confiscation of goods and subsequent payment of redemption fine.
The Hon’ble High Court summarised its conclusions as under:
(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) The Court did not concur with the Division Bench that held 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.
Accordingly, it was held that under Sections 125 the Customs Act, 1962 (the Act) read with Section 126 of the Act, where the redemption fine in lieu of confiscation is not paid within the time stipulated, the Central Government is entitled to retain the excess auction sale proceeds of the confiscated goods, after adjustment of the duty, penalty, interest and other statutory dues. The central government in such circumstance is under no obligation to return the excess amount to the importer.