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'REPORTABLE' IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1049 OF 2008

FORTIS HOSPITAL LTD.                         ... Appellant VERSUS

COMMISSIONER OF CUSTOMS,IMPORT               ... Respondent

J U D G M E N T A. K. SIKRI, J.

The  appellant  herein,  which  is  the  successor  of  M/s.Wockhardt Hospital and Heart Institute (referred to as  the 'Institute' hereinafter) had a hospital at Bangalore.  Sometime in the year 1990, the said Institute imported a  Cardiac  Catherization  Laboratory  (known  as  Angiography  system)  with  its  spares/accessories  valued  at  Rs.1,14,23,471/-.  The said Institute applied for exemption  from  payment  of  import  duty  taking  shelter  under  the  Notification  No.  64/88-cus  dated  01.03.1988.   This  notification  provides  for  exemption  on  medical  equipment  imported against Custom Duty Exemption Certificate issued by  the Director General of Health Services.  Apart from the  said certificate, there are certain other conditions which  are mentioned in the notification that need to be satisfied  to avail the exemption.  These conditions are as under: -

“All such hospitals which may be certified by the  said Ministry of Health and Family Welfare, in each

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case, to be run for providing medical surgical or  diagnostic  treatment  not,  only  without  any  distinction  of  caste,  creed,  race,  religion  or  language but also: - (a) free, on an average, to at least 40 per cent  

of all their outdoor patients; and (b) free  to  all  indoor  patients  belonging  to  

families  with  an  income  of  less  than  rupees  five  hundred per month, and keeping for this purpose at  least 10 per cent of all the hospital beds reserved  for such patients; and (c) at reasonable charges, either on the basis of  

the income of the patients concerned or otherwise to  patients other than those specified in clauses (a)  and (b).”

From a bare reading of the aforesaid stipulations, it  is clear that these conditions are to be fulfilled not at  the time of the import but in future, by the importer while  utilising the imported equipment.  Therefore, the conditions  are continuing in nature.   

The Institute was not charged any import duty as it had  produced  requisite  certificate  dated  11.02.1991  issued  by  the Director General of Health Services, New Delhi.  After  sometime, the Revenue authorities/respondent herein came to  know  that  the  Institute  was  committing  breach  of  the  aforesaid  conditions,  as  it  had  not  been  providing  free  diagnostic treatment to at least 40 per cent of all its  outdoor patients and it was also not giving free treatment  to indoor patients having income of less than Rs.500 per  month  and  for  this  purpose,  it  had  not  got  10  per  cent  hospital beds reserved for such patients.  It resulted in  issuance  of  show  cause  notice  to  the  Institute.

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Pertinently,  this  show  cause  notice  dated  12.01.2000  was  issued  under  Section  124  of  the  Customs  Act,  1962  (hereinafter referred to as Act) and after stating that the  aforesaid breach was allegedly committed by the appellant,  in the show cause notice, it was proposed as under: -

“16. Therefore, M/s. Wockhardt Hospital & Heart  Institute, Bangalore are called upon to show cause to  the Commissioner of Customs, Air Cargo Complex, Sahar,  Andheri (E), Mumbai-99 as to why: - (a) the medical equipments/spares and accessories as  detailed  in  Annexure  of  the  Show  Cause  Notice  and  valued at Rs.1,14,23,471/- should not be confiscated  under Section 111(o) of the Customs Act, 1962. (b) Penalty should not be imposed under Section 112  of  the  Customs  Act,  1962  for  the  omission  and  commission committed by the Wockhardt Hospital & Heart  Institute Bangalore.”

In para 17 of the Show Cause Notice, the Noticee was  also asked to show as to why penalty under Section 112 of  the Act should not be imposed.  The Institute replied to the  said  Show  Cause  Notice  and  also  desired  to  be  heard  in  person.  Personal hearing was accorded to the Institute.  It  had filed written submissions which were also considered.  However, the plea of the Institute in the reply filed to the  Show Cause Notice was not accepted.  Orders dated 11.07.2002  were passed by the adjudicating authority holding that the  Institute  had,  in  fact,  committed  the  breach  of  the  Notification No. 64/88 dated 01.03.1988.  Accordingly, the  goods,  viz.,  the  aforesaid  medical  equipment  was  confiscated.   The  operative  portion  of  order  of  the  confiscation and penalty reads as under: -

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“a) I order, the confiscation of the goods valued at  Rs.1,14,23,471/- mentioned in the show cause notice,  under Section 111(o) of the Customs Act, 1962.  The  importer  may  redeem  them  on  payment  of  a  fine  of  Rs.1,00,000 (Rs. One lakh only), within thirty days of  this order. b) I also direct that the importer shall forthwith pay  the duty amounting to Rs.1,65,24,050/-(Rs. One crore  sixty five lakhs twenty four thousand and fifty only)  in view of the failure to discharge the continuing  obligation  under  notification  No.  64/88  during  the  material period. c) I impose a penalty of Rs.25,000 (Rs. Twenty five  thousand only) on the importer under Section 112(a) of  the Customs Act, 1962. d) The proceedings in respect of DGHS are dropped.”

As is clear from this order, after confiscation of the  goods, option was given to the Institute to redeem the said  goods on payment of fine of Rs.1 lakhs.  In addition, the  Institute was also directed to pay the duty amounting to Rs.  1,65,24,050/-  “in  view  of  the  failure  to  discharge  the  continuing  obligation  under  notification  No.  64/88  during  the material period”.  Penalty of Rs. 25,000/- under Section  112(a) of the Act was also levied.  The Institute challenged  the  aforesaid  order  by  filing  appeal  before  the  Customs,  Excise  &  Service  Tax  Appellate  Tribunal  (hereinafter  referred to as 'CESTAT').  Since we are concerned with that  part  of  the  order  vide  which  the  duty  was  imposed,  henceforth  we  will  confine  our  discussion  to  this  aspect  alone.

Before the CESTAT, submission of the Institute was that  in  the  Show  Cause  Notice  nothing  was  stated  about  the  payment  of  duty  and  as  the  Show  Cause  Notice  was

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conspicuously absent in this behalf, in the final order, the  duty could not have been demanded.  It was argued that such  an  order  would  be  violative  of  the  principle  of  nature  justice.  The Institute also referred to the provisions of  Section 125 of the Act which gives an option to pay fine in  lieu  of  confiscation.   It  was  argued  that  as  per  this  provision, option is to be given to the importer and it is  left to the importer who has to exercise the same.  It would  imply that if no such option is exercised, the goods are not  to be redeemed and they would remain the property of the  Government.   In  that  case,  when  such  an  option  is  not  exercised,  no  fine  is  payable  and  when  no  such  fine  is  payable,  duty  could  not  be  demanded  by  relying  on  the  provisions of Sub-section (2) of Section 125 of the Act, as  such  an  eventuality  has  not  arisen  in  the  present  case  because of the reason that the Institute had not exercised  the option and had not paid the fine.  This contention found  favour with the CESTAT and while accepting the same, CESTAT  discussed the legal position in the following words:  

“We  have  carefully  considered  the  rival  submissions.  We have also perused the case law cited  before  us  as  well  as  the  judgment  of  the  Hon'ble  Supreme Court in the case of CC, Mumbai v. Jagdish  Cancer & Research Centre 2001(132)ELT 257 (SC).  It is  no doubt true that under Section 125(2) of the Customs  Act, 1962 when goods are redeemed, duty will have to be  paid  in  addition  to  the  fine  imposed  in  view  of  confiscation.  However, the argument before us is not  that only fine is required to be paid for redemption of  the imported goods.  The question before us is whether  duty is payable even in the event of the option not  being exercised.  The decision of the Supreme Court in

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Jagdish Cancer & Research Centre cited supra does not  address itself to this issue.  No such argument was  ever raised before the Apex Court.  The contention of  the learned DR that the conduct of the appellants in  use  of  the  imported  equipment  after  import  is  tantamount  to  their  having  exercised  the  option  of  redemption and, therefore, they are liable to pay duty,  is not tenable as it is only on adjudication that the  option is extended by the adjudicating authority and  the option could not have been exercised prior to the  passing of the impugned order and, therefore, the use  of the imported equipment by the appellants; in their  Institute cannot amount to their having exercised the  option to redeem the goods, which comes at a subsequent  stage namely when the impugned order of adjudication is  passed.  We therefore hold that the duty demand is not  sustainable  and  accordingly,  set  aside  the  same,  however,  if  the  absence  of  any  challenge  to  the  confiscation and to the imposition penalty, both are  sustained.”

In this manner, appeal was allowed holding that demand  of duty was not legally sustainable and that part of the  Order-in-Original passed by the adjudicating authority was  set aside.

Not  satisfied  with  the  aforesaid  outcome,  the  respondent-Revenue  challenged  the  order  by  filing  appeal  before  the  High  Court  of  Bombay.   It  was  argued  by  the  Department that the moment order of confiscation is passed  with option given to the Institute to redeem the goods on  payment of fine, the eventuality comtemplated under Section  125(2) of the Act comes into operation and therefore, in the  scheme of things, it was permissible for the Department to  charge duty as well.  It was also argued that when it is  found  that  the  Institute  had  violated  the  conditions

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stipulated in Notification No. 64/83 dated 01.03.1988, the  only  conclusion  would  be  that  duty  was  payable  by  the  Institute and therefore, the Department was well within its  right to demand the duty.   

The  High  Court,  after  discussing  the  respective  contentions  in  detail,  accepted  the  submissions  of  the  Department  and  set  aside  the  order  of  the  CESTAT.   The  rational given by the High Court is contained in Para 41 of  the  impugned  judgment  which  interprets  the  provisions  of  Sub-section (2) of Section 125 of the Act as well reflects  the reasoning adopted by the High Court in support of its  view.   We  deem  it  appropriate  to  reproduce  the  same  hereinbelow:-  

“41. We find it difficult to accept the above  interpretation  of  Section  125  (2).   It  is  well  established in law that the taxing statutes have to be  construed strictly and unless the literal meaning leads  to anomaly or absurdity, the golden rule of literal  interpretation should be adhered to.  Literal meaning  of Section 125(2) is that, whenever the goods liable to  be confiscated under the Customs Act are allowed to be  redeemed by giving an option to pay fine in lieu of  confiscation imposed under Section 125(1), the owner of  such goods or the person referred to in section 125(1)  shall, in addition to the fine be liable to any duty  and charges payable in respect of such goods.  In other  words, under Section 125(2), the duty payable on the  confiscated goods has to be paid on imposition of fine  in lieu of confiscation and it is immaterial whether  such option is exercised or not.”

As  is  clear  from  the  above,  according  to  the  High  Court, whether option under Section 125(2) of the Act is  exercised or not, is immaterial.  

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In order to find out as to whether the High Court is  right  or  CESTAT's  interpretation  of  the  provisions  of  Section 125(2) of the Act is correct, it would be necessary  to peep into the said provision along with Section 124 of  the Act.  These two Sections are worded as follows:  

“Section  124.  Issue  of  show  cause  notice  before  confiscation of goods, etc. - No order confiscating any  goods or imposing any penalty on any person shall be  made under this Chapter unless the owner of the goods  or such person- (a) is  given  a  notice  in  writing  with  the  prior  approval of the officer of customs not below the rank  of an Assistant Commissioner of Customs, informing him  of the grounds on which it is proposed to confiscate  the goods or to impose a penalty; (b) is  given  an  opportunity  of  making  a  representation in writing within such reasonable time  as may be specified in the notice against the grounds  of  confiscation  or  imposition  of  penalty  mentioned  therein; and  (c) is given a reasonable opportunity of being heard  in the matter:

Provided that the notice referred to in clause  (a) and the representation referred to in clause (b)  may at the request of the person concerned be oral.” “Section  125.  Option  to  pay  fine  in  lieu  of  confiscation.– (1) Whenever confiscation of any goods  is authorised by this Act, the officer adjudging it  may,  in  the  case  of  any  goods,  the  importation  or  exportation whereof is prohibited under this Act or  under any other law for the time being in force, and  shall, in the case of any other goods, give to the  owner of the goods or, where such owner is not known,  the person from whose possession or custody such goods  have  been  seized,  an  option  to  pay  in  lieu  of  confiscation such fine as the said officer thinks fit :  

Provided  that,  without  prejudice  to  the  provisions of the proviso to sub-section (2) of section  115, such fine shall not exceed the market price of the  goods confiscated, less in the case of imported goods  the duty chargeable thereon. (2)Where any fine in lieu of confiscation of goods is  imposed under sub-section (1) the owner of such goods

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or the person referred to in sub-section (1) shall, in  addition, be liable to any duty and charges payable in  respect of such goods.”

It may be seen from the bare reading of the aforesaid  Section  that  under  Section  125(1)  of  the  Act,  option  is  given to the importer whose goods are confiscated, to pay  the fine in lieu of confiscation and redeem the confiscated  goods.  Before this action is taken, Show Cause Notice is to  be issued under the provision of Section 124 of the said  Act.  This provision pertains to confiscation of goods and  provides procedural safeguards inasmuch as there cannot be  any order of confiscating any goods or imposing any penalty  on any person without complying with the procedure contained  in Section 124.  Section 124 mandates issuance of the Show  Cause Notice before passing any such order and contemplates  two actions: first, relating to confiscating of the goods  and  second,  pertaining  to  imposition  of  penalty.  Pertinently,  this  action  does  not  deal  with  payment  of  import duty at all.   

It is not in dispute that Show Cause Notice in the  instant case was issued under Section 124 of the Act.  Once  such a Show Cause Notice was issued and as can be seen from  the proposed action which was contemplated in this provision  (as has been taken note of above), it was also confined to  confiscation  of  the  imported  machinery  and  imposition  of  penalty.   Nothing  was  stated  about  the  payment  of  duty.

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However, in spite of the fact that Show Cause Notice was  limited  to  confiscation  of  the  goods  and  imposition  of  penalty,  the  final  order  which  was  passed  included  the  direction to pay the customs duty as well.  It is clear that  when  such  an  action  was  not  contemplated,  which  even  otherwise  could  not  be  done  while  exercising  the  powers  under Section 124 of the Act, in the final order there could  not have been direction to pay the duty.   

Notwithstanding the aforesaid position, as pointed out  above, the Department is taking shelter under the provisions  of sub-section (2) of Section 125 of the Act.  However, on a  plain reading of the said provision, we are of the view that  such a provision would not apply in case where option to pay  fine  in  lieu  of  confiscation  is  not  exercised  by  the  importer.   Trigger  point  is  the  exercise  of  a  positive  option to pay the fine and redeem the confiscated goods.  Only when this contingency is met, the duty becomes payable.  In  the  present  case,  admittedly,  such  an  option  was  not  exercised and the confiscated machinery was not redeemed by  the Institute.  As a matter of fact, thus, no fine has been  paid.   

Mr. K. Radhakrishnan, learned senior counsel appearing  for the Department, argued that even if an option was not  exercised, the moment it was stated in the order of the  Commissioner that fine is being “imposed”, sub-section (2)

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would get attracted.  We do not agree with the aforesaid  submission of Mr. Radhakrishnan.  The order confiscating the  goods has already been reproduced above.  Insofar as the  payment of fine is concerned, only option was given (and  that was only course of action which could be visualised  under  section  125).   The  order  categorically  states  that  “the importer “may” redeem the confiscated goods on payment  of fine of Rs.1,00,000 (Rs. One lakh only)”

Indubitably, unless an option is exercised, fine does  not become payable.  Sub-section (2) of Section 125 uses the  expression “imposed” by stating “where any fine in lieu of  confiscation of goods is imposed”.  In Black law dictionary  (Tenth edition), the word 'impose' is defined as “To levy or  exact (a tax or duty)”.  Thus, it has to be a levy or exact  which is become payable and has to be paid.  Likewise, the  word 'impose' is defined by Oxford English Dictionary, as  relevant for the purpose of the present case, as “Lay or  inflict  (a  tax,  duty,  charge,  obligation,  etc.)  (on  or  upon),  esp.  forcibly;  compel  compliance  with;  force  (oneself) on or upon the attention etc. of.”

In  view  of  the  above,  we  cannot  agree  with  the  submission of Mr. Radhakrishnan that fine been “imposed” in  the  present  case.   The  stipulation  contained  in  the  adjudicating  order  was  only  contingent  in  nature  which  contingency would have arisen only on exercising the option

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by the importer to pay fine in lieu of confiscation and to  redeem the goods.   

As  already  mentioned  above,  Section  124  deals  with  confiscation of goods and penalty and does not deal with  payment of import duty.  No doubt, such a payment of import  duty becomes payable by virtue of sub-section (2) of Section  125 but only when condition stipulated in the said provision  is fulfilled, namely, fine is paid in lieu of confiscation  of goods.  When the Department chose to take action under  Section 124 of the Act, it should have been alive of the  situation that the Noticee may not exercise the option and  in such case, duty would not be payable automatically.

It is not that the Department is without any remedy.  We  have  gone  through  the  provisions  of  notification  No.  64/88  dated  01.03.1988.   As  pointed  out  above,  importer  would be exempted from payment of import duty on hospital  equipment  only  when  the  conditions  contained  in  the  said  notification  are  satisfied.   Some  of  the  conditions,  as  pointed out above, are to be fulfilled in future.  If that  is not done and the importer is found to have violated those  conditions, Show Cause Notice could always be given under  the said notification on payment of duty, independent of the  action which is permissible under Section 124 and Section  125 of the Act.  It is also important to mention that under  certain  circumstances  mentioned  in  the  notification,  the

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importer can be asked to execute a bond as well.  In those  cases, action can be taken under the said bond when the  conditions contained therein are violated.  Therefore, if  the Department wanted the Institute to pay the duty, which  may  have  become  payable,  it  could  have  taken  independent  action; de hors Section 124 of the Act, for payment of duty,  simultaneously with the notice under Section 124 of the Act  or  by  issuing  composite  notice  for  such  an  action.   No  doubt, it could have waited for option to be exercised by  the Institute under Section 125(1) of the Act as well and in  that  eventuality,  duty  would  have  automatically  become  payable under Section 125(2) of the Act.  But when such an  option was not exercised, it could have taken separate and  independent  action  by  issuing  Show  Cause  Notice  to  the  effect  that  the  Institute  had  violated  the  terms  of  exemption  notification  and  therefore,  was  liable  to  pay  duty.   

What  is  emphasised  is  that  when  in  the  Show  Cause  Notice issued under Section 124, nothing was stated about  the  payment  of  import  duty,  there  could  not  have  been  direction  to  that  effect  in  the  final  order   Further,  insofar  as  Section  125(2)  is  concerned,  the  contingency  contained therein did not occur in the present procedure for  want of exercise of option to pay fine.  We, thus, are of  the opinion that the view taken by the CESTAT is correct and  the contrary view taken by the High Court in the impugned

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judgment is not warranted on the interpretation of Section  125(2) of the Act.   

High  Court  is  not  correct  in  observing  that  it  is  immaterial whether option under Section 125(2) is exercised  or not.  We would like to point out that the High Court has  referred to the judgment in the case of 'Commissioner of  Customs(Import), Mumbai v. Jagdish Cancer & Research Centre'  [2001 (6) SCC 483] in support of its conclusion.  However,  on going through the said judgment, we find that the issue  with which we are concerned in the present case did not  occur for consideration before the court in that case at  all, as is clear from para 12 of the said judgment, which is  reproduced below: -

“12. Whenever an order confiscating the imported goods  is passed, an option, as provided under sub-section (1)  of Section 125 of the Customs Act, is to be given to  the person to pay fine in lieu of the confiscation and  on such an order being passed according to sub-section  (2) of Section 125, the person “shall in addition be  liable to any duty and charges payable in respect of  such goods”.  A reading of sub-sections (1) and (2) of  Section 125 together makes it clear that liability to  pay duty arises under sub-section (2) in addition to  the fine under sub-section (1).  Therefore, where an  order is passed for payment of customs duty along with  an order of imposition of fine in lieu of confiscation  of goods, it shall only be referable to sub-section (2)  to  Section  125  of  the  Customs  Act.   It  would  not  attract Section 28(1) of the Customs Act which covers  the  cases  of  duty  not  levied,  short-levied  or  erroneously refunded, etc.  The order for payment of  duty under Section 125(2) would be an integral part of  proceedings relating to confiscation and consequential  orders thereon, on the ground as in this case that the  importer had violated the conditions of notification  subject  to  which  exemption  of  goods  was  granted,  without attracting the provisions of Section 28(1) of

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the Customs Act.  A reference may beneficially be made  to a decision of this Court reported in Mohan Meakins  Ltd.  v.  CCE  wherein it has been observed in para 6:  (SCC p.465)

“Therefore,  there  is  a  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 any duty or charge payable on such goods  apart from the redemption fine that he intends to  levy under sub-section (1) of that section.”

In this view of the matter the objection raised  by the Centre that Section 28 of the Customs Act would  be attracted is not sustainable.”

Obviously, the argument raised in that case predicated  on Section 28(1) of the Customs Act and plea was that notice  was  not  issued  by  the  “competent  officer”  and  was  also  beyond the time prescribed under Section 28(1).  In that  context,  the  Court  dealt  with  the  provisions  of  Section  125(1) as well as 125(2) and observed that order of payment  of duty under Section 125(2) would be an integral part of  the proceedings relating to confiscation and consequential  orders thereon.  This order, however, must be pursuant to a  show  cause  notice  and  adjudication.   The  court  was  not  dealing with the question as to whether sub-section (2) of  Section 125 would be applicable even when option to pay fine  in lieu of confiscation is not exercised.   

Accordingly,  we  allow  the  appeal  and  set  aside  the  order passed by the High Court.  We make it clear that it  would still be open to the Department to take appropriate

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independent  action  against  the  appellant  for  payment  of  import  duty,  in  case  it  is  still  within  period  of  limitation.     

..........................., J. [ A.K. SIKRI ]

..........................., J. [ ROHINTON FALI NARIMAN ]

New Delhi; March 24, 2015.