Custom, Excise & Service Tax Tribunal
M. Ambalal & Co vs Mumbai on 6 September, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: C/138/2003
[Arising out of Order-in-Original No: CCP/KPM/ADJN/M&P/27/ 2002 dated 05/12/2002 passed by the Commissioner of Customs (Preventive), Mumbai.]
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri P.R. Chandrasekharan, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
M. Ambalal & Co.
Appellant
Vs
Commissioner of Customs (Preventive)
Mumbai
Respondent
Appearance:
Shri J.C. Patel, Advocate for the appellant Shri V.K. Singh, Additional Commissioner (AR) for the respondent CORAM:
Honble Shri Ashok Jindal, Member (Judicial) Honble Shri P.R. Chandrasekharan, Member (Technical) Date of hearing: 06/09/2011 Date of decision: 25/10/2011 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
This appeal is being taken up for consideration in terms of the order of the Hon'ble Supreme Court of India in Civil Appeal No. 8235 of 2003 passed on 09/12/2010.
2. The facts arising for consideration in this case, briefly, are narrated below:
2.1. In the month of March 1991, the officers of the Commissionerate of Customs (Preventive), Mumbai, seized from the premises of M/s. M. Ambalal & Company (Ambalal in short) and from its employees rough diamonds valued at Rs. 3.21 Lakhs approx and cut and polished diamonds valued at Rs. 84.47 Lakhs. In the course of the investigation, statements were recorded of Shri Maganbhai Dayabhai Patel, a partner of the firm and other persons to the effect that the rough and polished diamonds had been smuggled into India by passengers. On the basis of these statements and other documents, notice was issued to M. Ambalal & Company and others concerned proposing confiscation of the diamonds under clause (d) of section 111 of the Customs Act, 1962 and for imposition of penalty. On adjudication, the Collector of Customs (Preventive) [now renamed as commissioner of Customs (Preventive)] vide order No. VIII(b) 10(200) cus/92/310 dated 3.12.92 ordered confiscation of the diamonds with an option to redeem them on payment of fine of Rs. 60 Lakhs. The adjudicating authority also imposed a penalty of Rs. 25 lakhs on Ambalal and penalties of varying amounts on the persons involved. The adjudicating authority further ordered that appropriate duty on these diamonds shall be paid.
2.2. An appeal was filed by M/s Ambalal & Co. and others before this Tribunal against the said order. This Tribunal vide order No. 2477-87/95 WRB dated 29.12.1995 confirmed the order of the adjudicating authority relating to M/s. Ambalal & Co. and set aside the penalties on other persons.
2.3. M/s. Ambalal & Co. filed a writ petition under Article 226 of the Constitution before the honble Bombay High Court. During the pendency of this petition, Kar Vivad Samadhan Scheme, 1998 was promulgated. The firm, therefore, availed of the provisions of the Scheme and deposited 50% of the penalty and fine imposed on it , and withdrew the writ petition before the High Court. The Designated Authority accepted the declaration of Ambalal and passed orders settling the matter under the Kar Vivad Samadhan Scheme, 1998, providing that the declarant can redeem the goods on payment of duty.
2.4 Ambalal approached the Commissioner of Customs in 1999 to redeem the goods and they were told that they have to pay appropriate customs duty.
2.5 Ambalal challenged this order of the Commissioner before the honble Bombay High Court. The Honble High Court vide order dated 10.10.2000 passed the following order:
We do not find any merit in the writ petition. Under section 125 of the Customs Act duty amount is payable in addition to fine. The dispute pending the High Court was on the question as to whether goods were of foreign origin and if not whether goods were of foreign origin was entitled to confiscate. Petitioner opted for KVS. But there was no dispute in-respect of duty amount. The dispute was only for redemption fine. Hence we cannot order release of goods without payment of duty. This is also clear from the definition of Tax Arrears under KVS. Hence rejected. This order will not prevent the petitioner from raising legal contentions before the A.O. 2.6 Against the above order, Ambalal filed an SLP No. 1495 of 2001 before the honble Supreme Court. The honble apex vide order dated 6-9-2002 disposed of the petition passing the following order:-
The Additional Collector of Customs (Preventive), Mumbai or other appropriate Assessing Officer shall, within three months from today decide what amount of duty can in law be demanded in respect of the seized diamonds.
The said order shall be passed by the Assessing office after granting the appellant an opportunity of being heard. It will be open to the petitioner to raise all contentions available to it in law to establish that no customs duty can be demanded from the petitioners in respect of the seized diamonds. 2.7 In terms of the above order of the Honble Supreme Court, Commissioner of Customs (Preventive) Mumbai, vide order No VIII/10-13/EB/91/VIII(b)10(35)Cus/2002 dated 5.12.2002 held that duty is payable at the rate of 250% as applicable to baggage classifiable in heading 98.03 of the Customs Tariff. The Commissioner did not accept the contention raised before him that the diamonds were entitled to exemption in terms of Notification 247/76-Cus dated 02/08/1976 which unconditionally exempted the rough diamonds from payment of basic customs duty and auxiliary duty.
2.8 Ambalal filed an appeal before this Tribunal against the aforesaid order of the Commissioner of Customs (Preventive) Mumbai on the following grounds:
(a) The Commissioner has erred in not allowing the benefit of exemption Notification No. 247/76-cus dated 2.08.1976;
(b) Duty under heading No. 98.03 of the Customs tariff can be demanded only on dutiable goods.
2.9 This Tribunal vide order No. CII/1536/WZB/2003 dated 23/06/2003 held that Ambalal are entitled to benefit of exemption notification No. 247/76- Cus dated 02/08/1976 and allowed the appeal. The Tribunal did not give any finding on the other grounds.
2.10 The Department filed an appeal before the Honble Supreme Court against the above order of the CESTAT. Honble Supreme Court decided the matter vide order in Civil Appeal No. 8235 of 2003 dated 9.12.2010. The Honble Supreme Court, inter alia, observed that:-
The three issues that falls for our consideration and decision are:-
(a) Whether the benefit of the exemption notification has been rightly granted to the respondent- firm by the Tribunal.
(b) Whether the declaration made under the KVS Scheme and the subsequent payment of amount quantified under the said Scheme by the respondentfirm vis-`-vis the release of the diamonds that were confiscated by the department.
(c) Whether the Baggage Rules were correctly applied by the Commissioner of Customs, while deciding the duty payable by the respondent-firm. 2.11 As regards the first issue the Hon'ble apex court held that:
It would be antithetic to consider that `smuggled goods' could be read within the definition of `imported goods' for the purpose of the Act. In the same light, it would be contrary to the purpose of exemption notifications to accord the benefit meant for imported goods on smuggled goods. Accordingly the apex court set aside the findings of the Tribunal allowing grant of exemption on smuggled diamonds under Notification No. 247/76-Cus dated 02/08/1976. In respect of the other two issues the Honble Supreme Court directed that the matter should be considered afresh by the Tribunal after affording an opportunity to both the parties involved to submit their views.
3 The Learned counsel for the appellant makes the following submissions:
3.1 On the first issue remanded by the Supreme Court relating to KVS scheme, there was no amount of duty determined in the Order dated 3-12-1992 passed by the Commissioner which was the subject matter of the Writ Petition pending before the High Court when the KVSS was introduced. Since there was no amount of duty determined as due or payable on the date of making of the KVSS declaration, duty was not a tax arrear as defined in Section 87(m) of the Finance Act 1998.
3.1.1 The expression tax arrear is defined in Section 87 (m) (ii) of the Finance Act, 1998 in relation to indirect tax enactment (Customs Act 1962 being indirect tax enactment) to mean the amount of duties determined as due or payable under that enactment as on 31st March 1998 but remaining unpaid as on the date of making a declaration under Section 88. In the present case no amount of duty was determined by the Order dated 3-12-1992 of the Commissioner and hence duty was not a tax arrear.
3.1.2 Further, the said Section 87 (m) (ii) provides that where a show cause notice is issued in respect of seized goods, tax arrear shall not include the duties on seized goods where such duties on the seized goods have not been quantified. In the present case the show cause notice did not quantify the duties on the seized goods. Thus duty on the seized goods was not a tax arrear.
3.1.3 The tax arrear was determined by the Designated authority under Section 90 of the Finance Act 1998 by his Order dated 29/12/1998 and the tax arrear was determined as 50% of the fine and penalty and no duty was determined by the Designated authority as being payable by the appellant. The amount determined by the designated authority and duly paid by the appellant has to be taken towards full and final settlement of tax arrears as provided under the said Section 90. The said order of determination of the amount of tax arrear by the designated authority is conclusive and final as provided under Section 90 (3). It therefore follows that once the appellant paid the amount of tax arrear as determined by the designated authority, being 50% of the fine and penalty, the same is towards full and final settlement of tax arrears and upon such payment there is no further tax payable by the Appellant. The Appellants are therefore entitled to the release of the diamonds and no further tax can be demanded from them.
3.1.4 The decision of the Bombay High Court in the case of CC v Wockhardt Hospital and Heart Institute 2006 (200) ELT 15 (BOM) which in para 51 lays down that duty has to be paid on confiscated goods even when the same is not demanded in the show cause notice can have no application to the present case. The said decision was not rendered in the context of the KVSS and was not concerned with the expression tax arrear as defined in Section 87 (m) (ii) of the Finance Act 1998 nor was it concerned with an Order of the designated authority passed under Section 90 of the said Finance Act which ordered payment of 50% of fine and penalty in full and final settlement of the tax arrear. It is a requirement of the definition of tax arrear in Section 87 (m) (ii) that the duty should have been quantified and determined which is not so in the present case.
3.1.5 A reading of Section 88 (f) (i) and (ii) of the Finance Act 1988 makes it clear that 50% of the fine and penalty is to be paid in cases where no duty is payable and in any other case (including a case where duty plus fine and penalty are payable) 50% of only the duty is payable. The very fact that the designated authority ordered payment of 50% of the fine and penalty would mean that the case was covered by Section 88 (f) (i) which means no duty was payable. There is no provision in the Finance Act, 1988, which contemplates paying of duty in addition to 50% of fine and penalty.
3.1.6 The reliance on the recital in the Certificate of full and final settlement of tax arrears which in para 3 states that the declarant can redeem the goods on payment of duty at appropriate rate can have no legal force inasmuch as there was no such mention in the Order dated 29/12/1998 passed by the designated authority under Section 90 of the Finance Act, 1998 and which order is as per Section 90(3) final and conclusive and which cannot be re-opened. There was no requirement to pay any duty as per the Order passed under Section 90 and the same is final and conclusive.
3.2 Without prejudice to the aforesaid submissions, and assuming while denying that the Appellants are liable to pay duty on the diamonds, in any event such duty cannot be demanded at the rate prescribed under Customs Tariff Heading No. 98.03 which covers All dutiable articles, imported by a passenger or a member of crew in his baggage. The Supreme Court has in its Order in paras 7, 8 and 12 to 14 held that smuggled goods cannot be said to have been imported and smuggled goods are antithesis of imported goods. In para 7 the Supreme Court has held that dutiable goods are those goods whose import is permitted by the Act or any other law in force. The Supreme Court has further held that since the goods in the present case are smuggled goods they cannot be said to be imported. Applying the law so laid down by the Supreme Court, it must necessarily follow that since the goods in the present case are smuggled and not imported they would not be covered by Tariff Heading 98.03 which covers dutiable goods imported by a passenger in his baggage. Thus the rate of duty in Heading 98.03 will not apply and the applicable rate would be that of Heading 71.02 which covers diamonds.
3.2.1 Note 1 of Chapter 98 of the Customs Tariff provides that Chapter 98 is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specific heading elsewhere in the Schedule. A bare reading of the said Note would show that for Chapter 98 will override Chapter 71 provided the conditions prescribed in Heading 98.03 are satisfied. The condition of hearing 98.03 is that the goods must be imported by the passenger in his baggage, The Supreme Court has held that the condition that the goods must be imported is not satisfied in cases where the goods are smuggled since smuggled goods cannot be said to be imported. Thus the condition of Chapter Heading 98.03 that the goods must be imported is not satisfied and therefore Chapter 98 will not prevail over Chapter 71 in the present case.
3.2.2 This would also follow from a reading of Section 78 of the Customs Act 1962 which provides that the rate of duty applicable to baggage shall be the rate in force on the date on which a declaration is made in respect of such baggage under Section 77. This makes it clear that for baggage rate to be applicable, there must first be a declaration filed in respect of such baggage under Section 77. It, therefore, follows that where the goods are smuggled and no baggage declaration is filed in respect thereof under Section 77, the question of applying baggage rate does not arise. In the present case, the adjudicating authority has applied the baggage rate in force on the date of seizure of the goods for which there is no legal sanction. There is no provision under the Customs Act, 1962 which provides for applying the baggage rate in force on the date of seizure of the goods. Thus, assuming while denying that duty was payable by the Appellant, the rate of duty in Heading 98.03 will not apply and the applicable rate would be that of Heading 71.02 which covers diamonds.
3.2.3 Without prejudice to the submissions made above, and assuming while denying that the appellants are liable to pay duty, the rate of duty which will apply is that under Heading 71.02 as in force on the date of payment of duty in terms of Section 15 (1) (c) of the Customs Act, 1962. Thus the duty will have to be re-quantified by applying todays rate of duty under Tariff Heading 71.02.
3.2.4 The reliance placed by the revenue on the decisions of the Tribunal in Suessen Asia Ltd vs. CC 2006 (198) ELT 143 and Pidilite Industries Ltd vs. CC 2006 (195) ELT 153 is untenable in law since the said decisions were rendered by the Tribunal much prior to the present decision of the Supreme Court which draws a distinction between goods which are imported and goods which are smuggled. Since it is a requirement of Tariff Heading 98.03 that the goods should have been imported by the passenger in his baggage and since this requirement is not satisfied in the case of smuggled goods , Tariff Heading 98.03 cannot apply. The law laid down by the Supreme Court will prevail over the said two decisions of the Tribunal which were rendered much prior to the Supreme Court decision.
4. The learned Additional Commissioner (AR) appearing for the Revenue made the following submissions:
4.1 As regards the demand of duty in respect of the goods under reference, namely, cut and polished diamonds/rough diamonds, in this case goods were confiscated by the Adjudicating Authority under section 125(1) of the Customs Act, 1962 and option was given to M. Ambalal to redeem the goods on payment of redemption fine. In the Order-In-Original, the Adjudicating Authority also asked M. Ambalal to pay duty. Thus the present case is squarely covered by the decision of the Honble Bombay High Court in the matter of Commissioner of Customs (Imports), ACC Sahar Vs. Wockhardt Hospital & Heart Institute 2006(200) ELT 15 (Bom). In para 51 of the said Order it has been held by the Honble Court that where liabilities to pay duty is consequential to confiscation, then on confiscation if the goods are permitted to be redeemed by imposing fine, then on such imposition of fine, duty becomes payable. Fact that duty was not specifically demanded in notice would not matter.
4.2 As regards submission that matter was settled under KVSS, the Commissioner of Customs (Preventive), the Adjudicating authority, had held that:-
37. They have further argued that declaration under KVSS-98 was filed by them and matter was finalized under the said scheme and therefore after the dues were paid under the said scheme their total liability in the case was over./ however, this contention of the party is not correct because only the liability of fine and penalty was settled under KVSS-98 Scheme and it was clearly mentioned by the designated authority in the form Certificate issued to them that the declarant should redeem the goods on payment of duty at appropriate rate. This itself proves that duty portion was not settled under KVSS-98 Scheme. In this regard, the Honble Bombay High Court in Writ Petition No.1976/2000 filed by the party has categorically said in its Order dated 10.10.2000 that even if taking into consideration the KVSS payment, we cannot order the release of the goods without payment of the duty Thus the contention of the party M/s. Ambalal & Co. that no duty can be demanded after the dues were settled under KVSS-98 is not correct and duty is recoverable at appropriate rate in terms of Section 125 (2) of the Customs Act, 1962 as clearly ordered in the Order-In-Original No. 48/92 dated 3.12.92 and also confirmed by the Honble Bombay High Court as mentioned above. 4.3 As regards submission regarding rate of duty in terms of section 15(1) (c) of the customs Act, 1962, in terms of Sub-Section (2) of the said Section, provisions of Section 15, sub section (1) are not applicable to goods imported by post or as baggage and in this case Adjudicating Authority had held in para 40 of the order that goods have been imported as baggage. The Adjudicating authority had held that:-
40. Regarding the duty proposed under the Baggage Rules, M/s. Ambalal & Co. have submitted that in their statements has been mentioned that the diamonds used to be imported/smuggled personally or through carriers by air and by other means suggests that they could have been imported/smuggled other than through baggage also and therefore, the duty under baggage rules should not be charged. However, I find that there has been no practice to import diamonds other than through other means, they should have declared those other means which they have failed to do, I, therefore, take it that all the diamonds under seizure were imported personally in baggage or through carriers and therefore, they could be charged to duty at the baggage rate. They have given the citation on the honble Supreme Court judgment in the case of Associated Cement Co. Ltd. V/s. Commissioner of customs 2001 (128) ELT 21 (SC) in which it has been decided that exemption notification shall be applicable to goods through the said judgment of the Honble Supreme Court, I find that the basic facts of that case are different from this case. In the said case, the goods under import were declared and were not imported clandestinely and were not smuggled. The Honble Supreme Court in the case of M/s. Montana Valves & Compressors (P) Ltd. V/s. Commissioner of Customs ( ELT Vol. 145 2002 page A-164) have declined to interfere in a case a fraud. Since smuggling is nothing but fraud, no exemption notification should be made available to the goods which were smuggled and clandestinely imported into the country with a malafide intention to evade the payment of Custom duty. I am, therefore, of the view that in such a case of smuggled goods, any exemption notification should not be applicable. Since there is nothing produced by the partly to prove that all the goods were imported through other means than in baggage, the rate of baggage duty prevalent at the relevant period should be applicable in this case. 4.4 As regards classification of these goods, as per Chapter note 1 to chapter 98 of the Customs tariff, This chapter is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specific heading elsewhere in this Schedule. Further heading 98.03 of Chapter 98 of the Customs tariff covers All Dutiable Articles, Imported by a Passenger or A Member of a Crew in this Baggage. During the period March, 91, when the goods were seized, rough diamonds were covered under heading 71.02.10 and cut and polished diamonds were covered under heading 7102.39 and both were liable to duty @ 40%. However, rough diamonds were liable to NIL rate of duty in terms of notification 247/76-Cus. It has been held by the Honble supreme court in case of Collector Central Excise vs. Vazir Sultan Tobacco Co. Ltd 1996(83) ELT 3 (SC) that NIL rate of duty is also a duty. Further it has been held by the Adjudicating authority that goods have been imported as baggage. Therefore, this is a case where dutiable goods have been brought into India through baggage. Therefore, they are correctly classifiable under heading 98.03 of the Customs Tariff. This Tribunal in the matter of Suesseen Asia Ltd. [2006 (198) ELT 143 (T-Mum)] & Pidilite Industries Ltd [2006 (195) ELT 153 (T-Mum)] has taken a similar view. As regards rate of duty, in case of imports through baggage, as per Section 78 of the customs Act, 1962, the relevant date is the date of declaration made under Section 77 of the Act ibid. However, in this case the goods have been brought into the country on various dates and no declaration has been filed by the persons carrying these goods. Therefore adjudicating authority has taken the rate of duty as applicable on the date of seizure as the rate applicable to the goods under reference.
5. We have considered the rival submissions very carefully.
5.1 In the certificate of intimation dated 29/12/1998 under Section 90(1) of The Finance (No.2) Act, 1998, in respect of Kar Vivad Samadhan Scheme, 1998 the designated authority under the said scheme had determined that the declarant therein (the appellant in the instant case) is liable to pay a sum of Rs. 30 lakhs towards fine and a sum of Rs. 12.5 lakhs towards penalty in full and final settlement of tax arrears covered by the declaration under the said scheme. However, in the certificate for full and final settlement of tax arrears under Section 90(2) read with Section 91 of The Finance (No.2) Act, 1998 dated 10/03/1999 the designated authority has ordered as follows:
The declarant imported diamonds without a valid import licence violating Customs Act, 1962. Therefore the diamonds were seized and Show Cause Notice F.No. VHI/10-13/EB/91/4787 dt. 6/9/91 was issued to the party. Redemption fine Rs. 60,00,000/- and penalty Rs. 25,00,000/- imposed by Commissioner of Customs (Prev.), in O-l-O No. 43/92 dt. 31/12/92 on the declarant was upheld by the CEGAT vide O-l-A No. 2477-87/95 WRB dt. 29/12/95.The Bombay High Court in W.P. No. 824 of 1996 filed by the declarant against the said O-l-A passed interim order for stay on furnishing Bank Guarantee of Rs. 12,60,000/- which stands withdrawn on request by declarant as required under KVSS as per H.C. Bombay order dt. 25/01/99 in W.P. NO. 824 of 1996. The declarant can redeem the goods on payment of duty at appropriate rate.
And whereas the declarant has paid Rs. 42.50,000/- (Rupees Forty Two Lakhs Fifty Thousand Only) being the sum determined by the designated authority.
And whereas the declarant had filed a writ petition No. 824 of 1996 before The High Court of Judicature at Bombay, against the order in respect of the tax arrears.
And whereas the declarant has withdrawn the said writ petition the High Court of Judicature at Bombay. and furnished proof of such withdrawal in accordance with the provisions contained in the proviso of Sub-section (4) of Section 90.
Now, therefore, in exercise of the powers conferred by sub-section (2) of Section 90 read with Section 91 of the Finance (No.2) Act, 1998, the designated authority hereby issues this certificate to the said declarant.
(g) certifying the receipt of payment from the declarant towards full and final settlement of tax arrears determined in the order dated 29/12/1998 on the declaration made by the aforesaid declarant.
(h) granting immunity, subject to the provisions contained in the Scheme, from instituting any proceeding for prosecution for any offence under Section 91 of the Finance (No.2) Act. 1998 (specify enactment) or from the imposition of penalty under said enactment, in respect of matters covered in the aforesaid declaration made by the declarant. 5.2 It can thus be seen that as per the final settlement certificate issued by the designated authority, the settlement of arrears towards fine and penalty was made at a sum of Rs. 42.5 lakhs whereas regarding duty, the certificate stated that the declarant can redeem the goods on payment of duty at the appropriate rate. When the final settlement was made, the petition before the Hon'ble High Court had been withdrawn and there was no dispute pending regarding payment of duty by the appellant and the Tribunals order, against which the writ petition was filed before the High Court, had become final, there being no challenge to the said order. Inasmuch as the Tribunal had upheld the confiscation of the goods and the redemption thereon, it can only imply that the Tribunal had upheld the payment of duty at the appropriate rate in case the appellant wants to redeem the goods in addition to fine and penalty. In other words, there was no dispute about payment of duty when the declaration under the KVS Scheme was made and settlement was allowed. The settlement was limited to only fine and penalty which was imposed and there was no settlement in respect of the duty payment. That is why the designated authority in the order relating to final settlement clearly stated that the declarant can redeem the goods on payment of duty at the appropriate rate. The honble Bombay High Court also in order dated 10/10/2000 held that:-
The dispute pending the High Court was on the question as to whether goods were of foreign origin and if not whether goods were of foreign origin was entitled to confiscate. Petitioner opted for KVS. But there was no dispute in-respect of duty amount. The dispute was only for redemption fine. Hence we cannot order release of goods without payment of duty. This is also clear from the definition of Tax Arrears under KVS. Hence rejected. This order will not prevent the petitioner from raising legal contentions before the A.O. Therefore, the contention of the appellant that the matter has been finally settled on payment of 50% of the fine and penalty in full and final settlement of the tax arrears is not borne out of the records of the case and has to be rejected completely.
5.3 The Hon'ble High Court of Delhi in Iron Master (India) Pvt. Ltd. vs. Union of India 1999 (114) ELT 792 (Del.) dealt with a similar case. In that case, the customs authorities gave the option to the petitioner to redeem the goods on payment of redemption fine of Rs. 15 lakhs and on payment of penalty Rs. 3 lakhs. The amount of customs duty required to be paid in addition to the redemption fine and penalty in terms of Section 125(2) worked out to Rs. 2,53,062/-. The Petitioner filed a declaration on 31/12/1998 under the Kar Vivad Samadhan Scheme offering to pay 50% of the duty amount i.e., 1,26,531/- and claiming complete waiver of the redemption fine and penalty. However, the customs authorities directed the Petitioner to pay the entire amount of duty i.e. 2,53,062/- and 50% of the penalty and redemption fine and the Petitioner filed a writ petition before the Hon'ble High Court of Delhi. The Hon'ble High Court held as follows:
17. In the light of the foregoing, let us recapitulate the facts of the present writ petitions:
The goods in question had been imported in contravention of law and, therefore, were liable to be confiscated under Section 111(d) of the Customs Act, 1962. The proceedings for confiscation of the goods were initiated in accordance with the statute i.e. Section 125(2) of Customs Act, 1962. Petitioner was given an option of payment of redemption fine and penalty in lieu of confiscation. Petitioner had challenged the quantum of redemption fine and penalty at various levels culminating it in dismissal of appeal by the CEGAT and confirmation of the redemption fine and penalty as imposed. It is significant that the goods stand confiscated and it is only when the petitioner exercises its option, by payment of redemption fine and penalty, that the question of release of goods would arise. Petitioner hitherto before, neither challenged nor could challenge the payment of customs duty, which being a statutory obligation, on import of goods is payable. Petitioner wishes to avail of the benefit of redemption of confiscated goods. Neither the classification of the goods nor the rate of duty applicable or the amount thereof has been in dispute. In fact, there has been no dispute or controversy whatsoever in respect of the amount of custom duty payable. Accordingly, the present case would clearly fall within Section 88f(1) of the Scheme, wherein tax arrears are those of redemption fine and penalty. The obligation for payment of customs duty arises on exercise of option to redeem the goods. It is de hors and independent of the dispute or arrears of tax comprising the redemption fine and penalty.
18. The Designated Authority, therefore, was fully justified in issuing the certificate of intimation, wherein the petitioner was required to pay the full amount of duty and 50% of the redemption fine and penalty. The requirement for payment of full amount of customs duty in respect of which there is no list is in consonance with the provisions of Section 125 of the Customs Act and other provisions of the Scheme.
19. We find considerable merit in the submission of the respondent that the Scheme has to be given a purposive interpretation and the Scheme cannot be interpreted in a manner so as to defeat the very object and intention of the Scheme. Petitioner cannot claim to pay simply 50% of the duty amount specially when there has been no lis in respect of the same or dispute with regard to it. Petitioner's case is not advanced by the published questions and answers in particular question No.5. Questions and answers issued are by way of illustration and to guide the assessee. Questions and answers or any inference drawn therefrom cannot negate or make otiose any provision of the Scheme. Answer to question No. 5 cannot be interpreted in a manner so as to negate the essential feature of the Scheme. Question No. 1-3 clearly bring out that the scheme is for settlement of certain disputes involving arrears of taxes, dues, etc. The scheme is to provide legal framework for settlement of tax dues in various categories of pending cases in dispute. These answers, therefore, demonstrate the existence of a dispute or lis being a sine qua non for the applicability of the Scheme. Learned counsel for petitioner has cited a number of authorities to urge that if two interpretations were possible, the one favouring the subject/assessor should be preferred. Further, that there is no equity in respect of fiscal statutes, and the benefit even of a legal lacunae must flow to the assessee. These authorities and principles do not apply or arise for consideration in the present set of facts and there being no ambiguity with regard to the provisions of the Scheme. There is also no merit in the petitioner's contention that as regards indirect tax enactments, the requirement of arrears in dispute is not there.
20. We, therefore, find no merit in any of the contentions raised by the petitioner. The writ petitioners are dismissed with no order as to costs. 5.4 The ratio of the above judgment applies squarely to the facts of the present case as the facts involved are more or less identical. Accordingly, we hold that in the instant case also, in addition to 50% of the fine and penalty paid for settlement of the case, the appellant is also liable to pay duty at appropriate rate on the confiscated goods and only on such payment of duty the appellant can redeem the goods and we hold accordingly.
5.5 The next issue for consideration is whether the duty is liable to be paid on the confiscated goods by treating them as baggage under Chapter Heading No. 98.03 of the Customs Tariff Schedule. While the revenues contention is that since the goods have been brought by way of passenger baggage, the baggage rate of duty is applicable. The learned counsel for the appellant contests this point and submits that the rate of duty prescribed under Chapter 98 in respect of baggage can be applied only if the conditions therein are satisfied. The condition to be satisfied are that the goods must be imported by the passenger in his baggage and in respect of baggage, as per Section 78 of the Customs Act, the rate of duty applicable will be the rate in force on the date on which a declaration is made in respect of such baggage under Section 77. In the instant case since the goods are smuggled and the apex court has held that smuggled goods cannot be treated as imported goods, the question of classifying them as baggage under Chapter 98 does not arise at all. Secondly, there is no evidence that the goods have been imported by passengers in their baggage except for a statement given by the appellant which is not conclusive to say that the goods have been actually imported as passengers baggage. Further as per the said statement diamonds used to be imported/smuggled personally or through carriers by air and by other means. Since the appellants failed to declare those other means, the adjudicating authority took the view that all the diamonds under seizure were imported personally in baggage or through carriers and therefore the goods could be charged to duty at the baggage rate. This is only a hearsay evidence and in our view can not be taken as a basis for classification of goods as baggage. Further the seizure has not taken place in a customs area at all so as to have a reasonable presumption that it could have been brought in the baggage. Besides, there is no declaration filed in respect of such baggage to apply the rate of duty applicable to baggage on the impugned goods under Section 78 read with Section 77 of the Customs Act. In view of this, the claim of the department to levy duty under Chapter Heading No. 98.03 does not have sufficient legal basis and we hold accordingly. The question would then arise what would be the relevant classification for the purpose of levy in the instant case. Diamonds, whether or not worked, but not mounted or set fall under heading No. 71.02 of the Customs Tariff. Since the goods under seizure are rough as well as cut and polished diamonds, they would be correctly classifiable under heading No. 71.02 of the Customs Tariff for the purpose of levy and we hold accordingly.
5.6 The last issue for consideration is what will be the relevant date for the purpose of charging of duty in the instant case. The date of importation of these goods is not known as they are smuggled. Since the goods have been confiscated, the liability to pay duty arises when they are allowed to be redeemed on payment of fine. Section 125 (2) of the Customs Act, 1962, provides that,-
(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 be liable to duty and charges payable in respect of such goods. The Ld. Counsel for the appellant has argued that as per the provisions of section 15(1)(c) of the Customs Act, the relevant date for determination of rate of duty is the date of payment of duty. We do not agree with this view. The appellant exercised the option to redeem the goods when he paid the fine in lieu of confiscation. The payment of duty arises at the time of redemption and the option to redeem the goods was exercised when the fine was paid. Therefore, whatever was the rate of duty applicable at that time, that is, the date on which the fine was paid and the option to redeem the goods was exercised, will be the relevant date for computing the rate of duty also. As regards the value of the goods, the valuation in the instant case has already been done by the Commissioner at Rs. 88,20.050/- in the order dated 05/12/2002 and there has been no challenge to this valuation. Therefore, the duty liability will have to be computed on this value at the rate applicable to the goods at the time of exercising the option to redeem the goods which was the date of payment of redemption fine in this case. As already held by the honble apex court, the appellant will not be eligible for any concessional rate of duty and the duty liability will have to be discharged at the tariff rate applicable to the goods under CTH No. 71.02 and we hold accordingly.
6. In fine, we hold that the appellants are liable to pay customs duty on the confiscated diamonds at the tariff rate of duty applicable to goods falling under Heading No. 71.02 of the First Schedule to the Customs Tariff Act on the date of payment of fine (date of exercising the option to redeem the goods) in addition to the fine and penalty already settled under the Kar Vivad Samadhan Scheme.
7. The appeal is disposed of in the above terms.
(Pronounced in Court on 25/10/2011) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 2