Customs, Excise and Gold Tribunal - Mumbai
Bombay Hospital Trust vs Commissioner Of Customs on 3 October, 2005
Equivalent citations: 2005(188)ELT374(TRI-MUMBAI)
ORDER Chittaranjan Satapathy, Member (T)
1. This five-member Bench has been constituted "to reconsider the decision rendered in the case of Lady Amphthil Nurses Instns. v. Commissioner of Customs, Chennai - reported at 2002 (150) E.L.T. 776 (Tri.-LB), pursuant to the referral order dated 8-4-2005 of the three-member Bench, to which the matter was originally referred to by the Division Bench that heard the appeal initially (vide referral order dated 1-7-2005). We have heard at length Shri E.P. Barucha, learned Senior Advocate for the appellants and Shri R.K. Pardeshi, learned D.R. for the Department. Both of them have argued the matter extensively and have painstakingly taken us through various case laws relevant to the case. Brief Facts of the Case
2. The appellants were issued two show cause notices dated 29-9-98 and 17-3-99 proposing confiscation of medical equipments, spares and accessories earlier imported by the appellants duty free under Notification No. 64/88-Cus., dated 1-3-88, and collectively valued at Rs. 8,24,78,366/- (Rs. 34,91,567/- + Rs. 7,89,86,799/-). These notices also proposed recovery of customs duty amounting to Rs. 11,52,06,608/- (Rs. 39,36,742/- + Rs. 11,12,69,866/-) as well as penal action against the appellants. The impugned imports took place during 1988-1994.
3. It was inter alia alleged in the said show cause notices that the appellants had made wilful misstatements in their applications for obtaining customs duty exemption certificates and had suppressed the facts about the non-fulfilment of the conditions of the Notification No. 64/88. It was also alleged that the appellants had failed to fulfil the conditions of the said notification, that they were well aware of the continuous obligation cast on them at the time of import and that, therefore, they should not have opted for the scheme.
4. The impugned order arises from adjudication of these two show cause notices. The Adjudicating Commissioner has come to a finding that the appellants have violated the two post-imposition conditions in the said Notification No. 64/88 relating to (i) giving free treatment to 40% of the outdoor patients and (ii) keeping 10% of the total beds free for patients with family income less than Rs. 500/-. He has, therefore, confirmed the duty demand of Rs. 11,52,06,608/-. He has also confiscated the impugned goods valued at Rs. 8,24,78,366/-. However, for the reasons recorded by him in Paragraph 43 of the impugned order including the observation that the impugned equipments would by then have exceeded their serviceable life, he has imposed a nominal redemption fine of Rs. 20 lakhs and a nominal penalty of Rs. 2 lakhs. It is the main contention of the appellants that they do not wish to redeem the confiscated goods on payment of fine and hence the duty is not payable by them. The Department's main contention is that the duty is payable.
5. We find from Paragraph 10 of the respective show cause notices that the impugned goods were placed under seizure on 28-9-98 by issue of a seizure memo, but considering the utility of the subject goods the appellants were allowed to operate the same at their places of installation. There is also no indication in the appeal papers that these goods have ever been taken over by the Department after confiscation. We also find from Paragraph 40 of the impugned order that the Customs Duty Exemption Certificates under which the impugned goods were initially imported have been withdrawn as cancelled by DGHS on 27-8-99 and 26-3-2001, i.e. after issue of the impugned show cause notices but before issue of the impugned order.
The Ratio of the Referred Decision
6. Since the decision in Lady Amphthil (supra) has been referred to this Bench for reconsideration, we briefly extract below the issues framed in that case from Paragraph 4 of the said decision :-
(i) Whether action for recovery of customs duty for violation of the conditions of Notification No. 64/88-Cus. is required to be initiated by the Ministry of Health and Family Welfare/Directorate General of Health Services or by the Commissioner of Customs.
(ii) Whether action initiated by the Commissioner of Customs towards payment of such duties, levy of penalty and payment of fines in lieu of confiscation of offending goods under the Customs Act was beyond his jurisdiction in terms of Notification No. 64/88.
(iii) Whether the demands raised by the Commissioner of Customs were barred by time in terms of the proviso to Section 28 of the Act.
7. In a very detailed order, the three-member Bench of the Tribunal came to the following conclusions in Lady Amphthil (supra) :-
(i) Post-importation violation of the conditions of the exemption Notification would appropriately fall within the Customs jurisdiction and not within the jurisdiction of the certificate issuing authority that is MoH/DGHS (vide Para 38).
(ii) Customs can start recovery proceeding, recovery will be for the amount which was exempted, and equipment can be confiscated under Section 111(o) of the Customs Act, 1962 (vide Para 40 and Para 60).
(iii) Since liability to pay duty and confiscation of the goods can arise only subsequent to the date of clearance of the goods when there is infringement of the conditions, Section 28 does not apply (vide Para 56). In a case of continuing obligation, the date of clearance of the goods cannot be the date for determining limitation. Date for raising demand should be counted only from the date of show cause notice when infringement is alleged (vide Para 57).
The referring Benches in their referral orders dated 1-7-2003 and 8-4-2005 have sought reconsideration of Lady Amphthil (supra) on the following counts :-
(a) Paragraph 57 of Lady Amphthil (supra) does not indicate under what provision duty can be demanded. The department cannot proceed to recover duty in the absence of any specific provision for such recovery.
(b) It also does not indicate as to the basis in its view that the period of limitation will commence from the date of issue of notice.
Arguments on behalf of the Appellants
8. Main arguments advanced on behalf of the appellants are as follows :-
(1) The said Notification has no provision for demanding duty in the event of non-compliance with the conditions. It also does not provide for any bond or undertaking to enable the department to make recovery in terms of such bond or undertaking as has been prescribed under some other notifications.
(2) There is no other provision of law for demanding duty. Department cannot therefore recover duty in the absence of any legal provision for such recovery.
(3) Section 28 is not applicable in this case. Duty can be demanded in such cases under Section 125(2), only when the redemption option is exercised by the appellants, not otherwise. This view is supported by:-
(i) Gautam Diagnostic Centre v. CC, Mumbai - (Tri.).
(ii) Wockardt Hospital & Heart Institute v. CC, Mumbai - 2004 (176) E.L.T. 270 (Tri.).
(iii) Grant Medical Foundation v. CC, Mumbai - 2004 (178) E.L.T. 950 (Tri.).
(iv) CC (Import), Mumbai v. Jagadish Cancer & Research Centre -2001 (132) E.L.T. 257 (S.C.).
(4) Paragraph 12 of the Apex Court decision in Mediwell Hospital and Health Care Pvt. Ltd. v. Union of India - does not provide any authority to the Department to recover duly :-
(i) In the said case, the Apex Court dealt with the questions framed in Paragraph 7 of the said decision. The Apex Court's decision on these questions is concluded in Paragraph 11. Further observations in Paragraph 12 and beyond are not related to these questions, and hence they have no binding force. These observations are neither ratio decidendi nor obiter dicta in terms of the decisions of Honourable Bombay High Court rendered in Ulhas Oil and Chemical Industries v. H.M. Singh - 1988 (36) E.L.T. 462 (Bom.) and Mohandas Issardas v. A.N. Sattanathan - [2000 (125) E.L.T. 206 (Bom.) = (1954) Bom. L.R. Vol. LVI P. 1156].
(ii) Directions contained in Paragraph 13 of the said decision in Mediwell (supra) has been overruled by a Larger Bench of the Apex Court in Sri Sathya Sai Inst. v. U.O.I. - .
(iii) A Larger Bench of the Apex Court has overruled the decision in Mediwell (supra) in Faridabad CT Scan Centre v. DGHS - holding that benefit of an exemption notification is not to be extended to some one on the ground that such benefit had wrongly been extended to others. As such, Mediwell (supra) is no longer good law and hence cannot be taken as authority for recovery of duty.
(5) Section 143 applies to non fulfilment of conditions prior to import, and does not provide authority for recovery of duty when post importation conditions are violated.
(6) The adjudicating Commissioner in Paragraph 43 of the impugned order has observed that "even though the hospital has in strict terms failed to meet the conditions of the exemption, it is undeniable that it has been doing considerable charitable work and rendering service to the community". As such, the appellants are not in the category of fly-by-night operators. They are contesting the duty liability as there is no specific provision in law or in the notification for recovery of duty in the event of non-fulfilment of post-import conditions.
(7) The adjudicating Commissioner could have imposed penalty equal to duty, but he has chosen not to do so.
Arguments on behalf of Revenue
9. Main arguments advanced on behalf of the Department are as follows :-
(1) The Apex Court, in Paragraph 12 of Mediwell (supra) holds that conditions in Notification No. 64/88 cast a continuous obligation and duty is recoverable for violation of such obligation.
(2) Duty can be recovered not only under Sections 28 and 125 of the Customs Act, 1962 or in terms of Bonds executed, but also under an exemption notification, if its conditions are breached.
(3) The general limitation period prescribed under Section 28 will not apply to demand of duty for breach of conditions under the notification when the notification provides for no such time limit. This claim is supported by :-
(i) Prakash Cotton Mills v. S.K. Bhardwaj, ACCE - 1987 (32) E.L.T. 534 (Bombay),
(ii) UOI v. Indian Charge Chrome -.
(iii) Mohinder Steels Ltd. v. CCE, Chandigarh - 2002 (145) E.L.T. 290 (Tri.-LB).
(iv) Board's Circular No. 677/68/2002-CX 3, dated 3-12-2002.
(4) Exemption notification is a contingent contract between the Department and the appellants, hence the period of 3 years prescribed under the Limitation Act, 1963 will apply for demand of duty contingent upon non-fulfilment of the conditions in the notification.
(5) The power to levy duty is vital and that is not in dispute. Section 28 is merely procedural as held in CC, Mumbai v. Virgo Steels - and CCE, Chandigarh v. Smithkline Beecham Consumer Health Care Ltd. - .
(6) The appellants availed exemption under the notification and undertook to fulfil the conditions. Hence, any interpretation to the effect that duty is not payable despite violation of the conditions will be unjust and absurd, and such an interpretation will not advance the object of the statute. This view is supported by :-
(i) British Airways PLC. v. UOl -
(ii) Bhatia International v. Bulk Trading - 2002 (046) ARBLR 675 SC.
(iii) Corrocraft Ltd. v. Pan American Airways - AIR 1975 SC 1951.
(iv) CIT v. J.H. Gotta.
(v) Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan - 1987 (002) SCC (654) SC.
(7) Notifications are to be strictly construed and since exemptions from taxation increase the burden against unexempted class of taxpayers, the same should be construed against the subject in case of ambiguity as held in MMTC Ltd. v. CC - .
(8) Lady Amphthil (supra) correctly interprets that Section 28 is not applicable and hence, in the absence of any specific limitation period, the liability arises only when there is infringement of the condition in the notification. Medical Relief Society (supra) also supports the view that Section 28 does not come in the way of recovery duty which can be made in terms of the notification.
Findings
10. We have carefully considered all the arguments advanced from both sides as well as the case records, written submissions and the cited case laws. We briefly consider the legal provisions first in relation to the main argument by the appellants that duty cannot be demanded in the present case in the absence of any specific provision of law. We find that in Virgo Steel (supra), a Bench of three Judges of the Apex Court had dealt with this question. We quote from Paragraph 8 thereof :-
"While the absence of notice may invalidate the procedure adopted by the proper officer under the Act, it will not take away the jurisdiction of the Officer to initiate action for the recovery of duty escaped. This is because of the fact that the proper Officer does not derive his power to initiate proceedings for recovery of escaped duty from Section 28 of the Act. Such power is conferred on him by other provisions of the Act which mandate the proper Officer to collect the duty leviable.... A cumulative reading of these provisions found in the Act clearly shows that the jurisdiction of a proper Officer to initiate proceedings for recovery of duty which has escaped collection, is not traceable to Section 28. The power to recover duty which has escaped collection is a concomitant power arising out of the levy of customs duty under Section 12 of the Act."
This decision of the Apex Court clearly traces the power to recover duty which has escaped collection to Section 12 of the Customs Act, 1962.
11. Section 28 has two main ingredients : (i) issue of show cause notice, (ii) within the stipulated time period for recovery of duty, short levied, not levied and erroneously refunded. The first ingredient is merely a restatement of one of the Principles of natural justice. Even in the absence of such an explicit provision, a duty demand has to be proceeded by a notice. In the present case, such notices have been issued prior to issue of the impugned order.
12. As regards the time limits under Section 28, both sides have agreed that since the duty demand does not relate to short levy or non levy at the time of initial assessment on importation, but has arisen subsequently on account of failure to fulfil the post-importation conditions under the Notification No. 64/88, the said Section 28 has no application to a duty demand of this kind. We do not, therefore, wish to dwell further on the inapplicability of Section 28 to such demands. However, we note that since no specific time limit is prescribed under any other provision of the statute, the notice of demand in such cases cannot be subjected to any limitation of time. This view is supported by the ratio of the following two decisions of the Honourable Bombay High Court and the Apex Court :-
(i) Prakash Cotton Mills Pvt. Ltd. v. S.K. Bhardwaj, A.C.C.E. - 1987 (32) E.LT. 534 (Bombay)
(ii) Commissioner v. Raghuvar (India) Ltd. - 2000 (118) E.L.T. 311 (S.C.)
13. We find that while Section 12 gives the power to levy customs duty, Section 25 gives the power to grant exemption of duty in the public interest either absolutely or subject to conditions. In the case of Notification No. 64/88, the exemption granted is conditional. The conditions relating to (i) free treatment of 40% outdoor patients and (ii) reservation of 10% of beds for free treatment of patients with family income less than Rs. 500 p.m. make it manifestly clear what the public interest behind the said exemption is. If these conditions are not fulfilled after importation and the public interest is not served, the exemption becomes unavailable and full duty as leviable under Section 12 becomes payable.
14. We note that the impugned notification has not provided for obtaining any bond or bank guarantee for recovery of duty in the event of failure to fulfil the conditions of free treatment. However, it is the prerogative of the Government to grant exemption, as has been held in Sri Sathya Sai Inst. (supra), and it is for the Government to incorporate appropriate provisions. Merely because some other exemption notifications incorporate provisions regarding bond etc. by way of extra precaution and this one does not (as the Government may have valid reasons not to burden hospitals doing genuine charitable work with bonds and bank guarantees), this cannot be a valid plea by the appellants not to pay the demanded duty when the conditions of free treatment are violated. We also do not think that it is necessary for an exemption notification issued under Section 25 to contain a recovery provision when the power to recover duty can be traced to Section 12, nor any mandate to provide such a recovery provision in an exemption notification is contained in the said Section 25.
15. We find that in Mediwell (supra), the Apex Court has interpreted the said Notification No. 64/88 in the context of allowing import of medical equipment without payment of duty and has observed in Paragraph 12 thereof as follows :-
"While, therefore, we accept the contentions of Mr. Jaitley, learned senior Counsel appearing for the appellant that the appellant was entitled to get the certificate from Respondent No. 2 which would enable the appellant to import the equipment without payment of customs duty but at the same time we would like to observe that the very notification granting exemption must be construed to cast continuing obligation on the part of all those who have obtained the certificate from the appropriate authority and on the basis of that to have imported equipments without payment of customs duty to give free treatment at least to 40% of the outdoor patients as well as would give free treatment to all the indoor patients belonging to the families with an income of less than Rs. 500/- p.m. The competent authority, therefore, should continue to be vigilant and check whether the undertakings given by the applicants are being duly compiled with after getting the benefit of the exemption notification and importing the equipment without payment of customs duty and if on such enquiry the authorities are satisfied that the continuing obligation are not being carried out then it would be fully open to the authority to ask the person who have availed of the benefit of exemption to pay the duty payable in respect of the equipments which have been imported without payment of customs duty. Needless to mention the Government has granted exemption from payment of customs duty with the sole object that 40% of all outdoor patients and entire indoor patients of the low income group whose income is less than Rs. 500/- p.m. would be able to receive free treatment in the Institute. That objective must be achieved at any cost, and the very authority who have granted such certificate of exemption would ensure that the obligation imposed on the persons availing of the exemption notification are being duly carried out and on being satisfied that the said obligations have not been discharged they can enforce realization of the customs duty from them."
The Apex Court has thus clearly held that the said Notification No. 65/88 casts a continuing obligation and that in the event of failure to discharge that obligation, duty is demandable.
16. The learned senior Advocate for the appellants has argued at length that Paragraphs 12 and 13 of Mediwell (supra) are not to be taken as ratio decidendi or obiter dicta as they are in the nature of casual observation. We do not find force in such argument. In the concluding sentence of Paragraph 14 of Mediwell (supra), the Apex Court has clearly stated that "availability of such concession by the appellant would be subject to the direction and conditions as stated earlier". As such, the earlier Paragraph 12 is an integral part of the Apex Court's order being directions for availing the duty concession under the impugned notification. Moreover, we note that the Larger Bench of three Judges of the Apex Court in Sri Sathya Sai Inst. (supra) has overruled the extra conditions imposed under Paragraph 13 of Mediwell (supra) but has left Paragraph 12 untouched. The fact that a Larger Bench of the Apex Court has overruled the Paragraph 13 goes to show that everything beyond Paragraph 11 in Mediwell (Supra) is not in the nature of casual observation contrary to the arguments by the learned senior Counsel. Moreover, since Paragraph 12 has not been overruled, the same, in our view, provides binding authority for recovery of duty. We also note that the Honourable Karnataka High Court has followed the same in Medical Relief Society (supra).
17. The ratio of Faridabad CT Scan Centre (supra) that benefit of exemption notification is not to be extended to some one on the ground that such benefit had wrongly been extended to others, in our view, does not nullify the interpretation of the impugned notification and direction for duty demand contained in Paragraph 12 of Mediwell (supra) as these are two different legal issues.
18. It has been argued by the ld. Senior Counsel that in Paragraph 12 of Mediwell (supra), the Apex Court has not directed the Customs authorities to demand duty. A distinction is sought to be made between the DGHS who issued the certificates and Customs authorities who granted the exemption at the time of importation. We are of the view that DGHS and the Customs authorities are two branches of the same Government that has issued the exemption notification and Lady Amphthil (supra) has correctly concluded that the Customs authorities have jurisdiction for demanding of duty for violation of post-importation conditions by placing a reliance on the decision of the Apex Court in Sheshank Sea Foods Pvt. Ltd. v. UOI - . We also note that this part of the order of the Larger Bench in Lady Amphthil (supra) is not under reference to us for reconsideration.
19. The learned senior Counsel argues that by implication, Mediwell (supra) requires duty to be demanded in accordance with Section 125(2) only and no duty is demandable under that Section, if the appellants do not redeem the impugned goods after confiscation. In this regard we observe the following :-
(i) Mediwell (supra) and Medical Relief Society (supra) make no reference to Section 125(2) and allow recovery of duty to be made independent of the said Section.
(ii) Section 125(2) states that where any fine in lieu of confiscation of goods is imposed, the owner shall, in addition, be liable to any duty and charges payable on the goods. It merely clarifies that confiscated goods cannot be released on payment of fine alone. It, nowhere, says that if confiscated goods are not redeemed, the duty demand, if otherwise payable, gets extinguished. Jagadish Cancer (supra) also says that there is a mandatory requirement on the adjudicating officer before permitting the redemption of the goods to levy any duty. It also nowhere says that duty shall not be payable if the goods are not redeemed.
(iii) We find that the Department has merely placed the goods under seizure by issue of a seizure memo, but the appellants have been allowed to operate the impugned equipments at the places of installation in the premises of the appellants. Even after confiscation, the equipments remain with the appellants. As such, the appellants have had the use of the impugned equipments all along since the time of their importation and their contention that they do not wish to redeem the same has no meaning.
In view of the foregoing, we are of the view that the duty in respect the impugned goods imported by the appellants during 1988-94 and used by them in violation of the conditions of the impugned notification is payable irrespective of whether they redeem the same or not independently of Section 125(2) as the duty is recoverable under Section 12 and the impugned notification as well as in terms of the Apex Court decision in Paragraph 12 of Mediwell (supra).
20. We also find no merit in the argument of the ld. Senior Counsel that the adjudicating Commissioner could have imposed penalty equal to duty, but he has chosen to only impose a nominal penalty. We are of the view that the equal duty provision under Section 112 only provides a measure for the maximum penalty that can be imposed and it is not a provision for recovery of duty.
21. For the reasons staged above, we agree with the conclusion in Lady Amphthil (supra) that duty can be recovered by the Department when post importation conditions of an exemption notification are not fulfiled. We, however, do not agree with the observation in Lady Amphthil (supra) that the period of limitation in such cases will commence from the date of issue of notice. Since the time limit prescribed under Section 28 has been held to be not applicable to such cases, and since there is no other specific time-limit prescribed under the customs law to cover such cases, we are of the view that the notice of demand will not be subject to any limitation of time in such cases of non-fulfilment of post-importation conditions casting a continuing obligation as noted by us in Para-raph 12 above. Order
22. Accordingly, we answer the reference as follows :-
(i) When a post-importation condition in an exemption notification is not fulfilled, the Department has the power to recover the escaped duty in terms of Section 12 of the Customs Act, 1962. Paragraph 12 of the Apex Court decision in Mediwell (supra) also provides an authority for such recovery.
(ii) Such demand notices will not be subject to any limitation of time.
23. The case is returned to the Division Bench for deciding the Appeal on merit.
(Pronounced in Court on 3-10-2005)