Supreme Court of India

COMMISSIONER OF CUSTOMS (IMPORT) MUMBAIversusM/S. JAGDISH CANCER AND RESEARCH CENTRE

Citation: 2001 INSC 333
Decided: 2 August 2001
Disposal: Appeal(s) allowed
Bench: S P BHARUCHA

Holding

An order for payment of customs duty together with a fine in lieu of confiscation is referable to Section 125(2) of the Customs Act and does not attract Section 28(1); consequently the show‑cause notice was valid and the confiscation order stands.

Summary

The Jagdish Cancer and Research Centre imported a teletherapy unit under a duty‑free exemption granted by Notification No. 64/88, which required the hospital to provide free treatment to at least 40 % of outdoor patients, free treatment to all indoor patients whose family income was below Rs 500 and to reserve 10 % of beds for such patients. The Centre failed to comply with these conditions, and the Assistant Commissioner of Customs issued a show‑cause notice for confiscation of the equipment under Section 111(0) and a penalty under Section 112. The Adjudicating Authority confiscated the goods, offered redemption under Section 125(2) upon payment of a fine, and imposed a penalty, which the Centre challenged on the ground that the notice was not issued by a competent officer and was beyond the limitation period of Section 28(1). The CEGAT held that Section 28(1) applied and that the notice was invalid, setting aside the confiscation order. The Supreme Court held that an order for payment of customs duty together with a fine in lieu of confiscation falls under Section 125(2) and does not attract Section 28(1), and that the notice issued under Sections 124 and 125 was valid. Consequently, the Court allowed the appeal, restored the Commissioner’s order, and dismissed the CEGAT’s decision.

Issues considered

Whether an order for payment of customs duty together with a fine in lieu of confiscation is governed by Section 125(2) of the Customs Act or by Section 28(1).
Whether the show‑cause notice issued by the Assistant Commissioner was issued by a competent officer under the appropriate provisions.
Whether the limitation period under Section 28(1) applies to the notice in this case.
Whether the notice constituted a new ground for confiscation beyond what was specified in the notice.
Whether the Centre complied with the conditions of Notification No. 64/88 regarding free treatment and bed reservation.

Legislation cited

Customs Act, 1962s. 111(0), s. 112, s. 124, s. 125, s. 25(1), s. 28(1)

Subjects

customs dutyconfiscationSection 125Section 28duty‑free exemptionhospital equipmentshow‑cause noticefine in lieu of confiscation

Judgment

COMMISSIONER OF CUSTOMS (IMPORT) MUMBAI A
v.
MIS. JAGDISH CANCER AND RESEARCH CENTRE

AUGUST 2, 2001

.. [S.P. BHARUCHA, Y.K. SABHARWAL AND BRIJESH KUMAR, JJ.] B

Customs Act, 1962: Sections 25(1), 28(1), l ll{o), 112, 124 and 125.

Customs duty-Order passed for payment of customs duty along with
order offine in lieu of confiscation-Held, it is referable to Section 125(2)- C
Section 28(1) is not attracted in such a case.

Customs duty-Notification No. 64188-Cus. Dated 1.3.1988-Hospital
equipments-Import of-Exemption from duty-Conditions necessary for
exemption-Free treatment to at/east 40% of all outdoor patients-No period D
can be prescribed for achieving the given percentage-It is generally all
through the period-Reservation of Beds in hospital for families having income
ofless than Rs. 500 per month-Beds should be reserved in the hospital where
the equipment is installed-Import of Teletherapy Unit-Failure to comply
with conditions ofexemption-Order confiscating goods and levy ofpenalty-
Held valid. E
A hospital equipment Imported by the respondent-Centre was given
duty free clearance in terms of Notification No. 64188-Cus. dated 1.3.1988
subject to certain conditions specified in the Notification. Subsequently, it was
found that the conditions of the Notification had been violated by the
respondent. Consequently the Assistant Commissioner of Customs issued a F
show-cause notice to the respondent. The adjudicating authority rejected the
objection raised by respondent that notice was not issued by competent officer
and was also beyond time in terms of Section 28(1) of the Customs Act, 1962.
It found that respondent had failed to comply with conditions of Notification
viz. (I) to provide free treatment to at least 40% of the out door patients and G
(ii) Reserve 10% beds in hospital for patients belonging to families with an
income of less than rupees five hundred per month. Accordingly, an order
was passed confiscating the imported goods under Section I I l(o) with an
option to redeem the same under Section 125(2) on payment of fine of Rs.
50,000. A penalty of Rs. 5,000 was also imposed.
245 I-I
246 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A On appeal, the Customs, Excise and Gold (Control) Appellate Tribunal
held that Secti~n 28(1) was attracted and the Assistant Commissioner
(Customs) was not the proper officer to issue show cause notice. It found that
a new case was made out for confiscation of the imported goods on the ground
of not providing free treatment, which was not the ground for confiscation
B in Para 3 of notice. Accordingly CEGA Tallowed the appeal setting aside the
order of confiscation as well as the penalty imposed. The liability of customs
duty was however upheld though found to be unenforceable for want of legal
and valid show cause notice. Hence this appeal.

Allowing the appeal, the Court
c HELD : 1. The objection raised by the respondent-Centre that Section
28 of the Customs Act would be attracted is not sustainable. 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
D along with an order of imposition of fine in lieu of confiscation of goods, it
· shall only be referable to Sub-section (2) of 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
E 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 the Customs Act (252-G, D, El

2. A perusal of para 7 of the notice would indicate that confiscation of
the subject goods was intended for violation of various conditions of
F Notification No. 64/88 dated 1.3.1988. Various conditions which were violated
are indicated in paragraphs 3 and 5 of the notice. Para 3 contained only one
condition and not various conditions. Therefore, reading the notice parawise
and confining it watertight within each paragraph, would not be a correct
way of construing a notice. It is to be read as a whole to find out as to whether
G the person concerned is made aware of the various grounds on the basis of
which action is proposed to be taken as well as nature of the action. The view
taken by the CEGAT on the point is erroneous and cannot be upheld. (253-C-D(

3. A perusal of the condition in the Notification indicates that on an
average, at least 40 per cent of all outdoor patients should be provided free
H treatment. It is, thus, at least 40 percent or may be above. It would, not at
,, COMMR OF CUS. (IMPORT) "· JAGDISH CANCER ANIJ RESEARCH CENTRE [BRIJESH KUMAR, J.] 24 7

all, be necessary to prescribe any period to achieve the given percentage of A
patients treated free. It should generally be all through the period. It being
at least 40 percent, there is hardly any occasion to say that in case there is
more than 40 per cent during a given period, that may make good the
deficiency in the previous or the following year. It has not been in dispute
that the Centre did not have inpatient facility. Further, according to the B
condition of notification 10% of total beds in hospita~ are to be kept reserved
for patients of the families having an income of less than Rs. 500 per month.
The Centre, in this connection had an arrangement with another hospital in
the proximity which is a sister concern of the Centre, with whom the Centre
had entered into an agreement for reserving 10 per cent beds. Payments in
respect of these inpatients is to be made by the Centre. But the 10 per cent of C
the total number of beds are supposed to be reserved for patients of such
families in the hospital where the equipment is installed. The purpose of the
Notification for grant of exemption from payment of customs duty would not
be served by making payment of expenditure incurred on some inpatients in
some other hospital as alleged. The respondent Centre had failed to establish
that it had been able to fulfil the conditions of the notification. Consequently, D
the order passed by the CEGAT is set aside and that of the Commissioner of
Customs (Import) is restored. (253-G-H; 254-A-FJ

Mis. Mediewell Hospital and Healths Care Pvt. ltd v. Union ofIndia, (1997]
t SCC 759 and Mohan Meakins Ltd v. Commissioner ofCentral Excise, Kochi, E
[2000] t sec 462, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2680 of
2000.

From the Judgment and Order dated 14.12.99 of the Customs Excise F
and Gold Control Appellate Tribunal, West Regional Bench at Mumbai, in
A. No. C/1025-R/98-Bom. in F.O. No. C/3110/WZB/99.

Soli J. Sorabjee, Attorney General, N.K. Bajpai and B.K. Prasad for the
Appellant.
G
Yashank Adhyaru, Tarun Gulati and Ms. Ruby Singh Ahuja for the
Respondent.

The Judgment of the Court was delivered by

BRIJESH KUMAR, J. This appeal has been preferred by the H
248 SUPREME COURT REPORTS (2001] SUPP. I S.C.R.

A Commissioner of Customs (Import}, Mumbai, _against the order dated
14.12.1999 passed by the Customs, Excise and Gold (Control) Appellate

B
Tribunal, West Regional Bench, Mumbai, in appeal, setting aside the order
of confiscation of the imported equipment as well as the penalty imposed.
The liability of customs duty was however upheld, though found to be
unforceable, as the show cause notice issued was not a valid notice.
-
Mis. Jagdish Cancer and Research Centre, Hyderabad (to be referred as
'Centre') applied for duty free clearance of a consignment importing
Teletherapy Unit (Theratron780-C} for its use under Notification No. 64/88
- Cus Dated 1.3.1988, issued under Section 25(1) of the Customs Act, 1962.
C The Central Government under the aforesaid notification exempted all
apparatus and appliances etc. as hospital equipments essential for use in any
hospital on being satisfied that it would be necessary in the public interest to
do so. It is however subject to certain conditions whicli have been specified
in the said notification as under:-

D "2. All such hospitals which may be certified by the said Ministry of
Health and Family Welfare, in each 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 al: their outdoor
E 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 l 0 per cent of all the hospital beds reserved for
such patients; and

F (c) ........................................... .

Condition No. 4(iii) reads as under:-

4. Any such hospital which is in the process of being established and
in respect of which the said Ministry of Health and Family Welfare
G is of opinion-

(i)
(ii)
(iii) that such hospital would be in a position to start functioning
H within a period of two years, and
COMMR. OFCUS. (IMPORT) "· JAGDISHCANCERANDRESEARCH CENTRE (BRIJESH KUMAR,J.] 249

(iv) ................. .'.............................. . A
The request of the Centre was accepted and the consignment was cleared on
23.8.1989 free of duty.

The Department found t~at the Centre had failed to produce the
installation certificate in terms of Condition No. 4(iii) of the Notification and B
had also failed to observe other conditions, so the imported goods were liable
to confiscation. Consequently the imported equipment was seized by the
Department on 22.1.1998. The Assistant Commissioner of Customs issued a
notice to the Centre to show cause to the Adjudicating Authority, as to why
customs duty amounting to Rs. 64,93,598 be not demanded and the Teletherapy
Unit be confiscated under Section 111 ( o) and for imposition of pena!ty under C
Section 112 of the Customs Act.

The Centre showed cause raising an objection that notice was not issued
by the 'competent officer' and was also beyond time in terms of Section
28(1) of the Customs Act. It was also pleaded that the Centre was not required
to furnish any certificate in terms of condition No. 4(iii) of the Notification D
since it was a running hospital. Insofar it relates to free treatment to all
patients whose income was below Rs. 500 per month and reservation of. 10%
beds in the hospital for them as indoor patients, and for providing free treatment
to 40% of outdoor patients, their case is that the Centre had been providing
free treatment accordingly and the shortfall was only marginal over the years. E
Therefore, no condition of the Notification was violated.

The Adjudicating Authority held that installation certificate in terms of
Clause 4(iii) was not required to be submitted by the Centre but it failed to
comply with other two conditions about providing free treatment as required
and reservation of I 0% beds in the hospital. It was also found that the Centre F
did not have inpatient facility at all . Placing reliance upon a decision of this
Court in Mis Mediwel/ Hospital and Healths Care Pvt. Ltd. v. Union of India,
[1997] I SCC 759, it has been found that providing free treatment in terms
.of the Notification is a condnuing obligation, therefore, limitation as provided
under Section 28( I) of the Customs Act would not come into play. By order
of the Adjudicating Authority the goods imported were confiscated under G
Section 11 l(o) of the Customs Act with an option to the Centre to redeem
the same under Section 125(2) of the Customs Act on payment of fine of Rs.
50,000. A penalty of Rs. 5,000 was also imposed on taking a lenient view,
since it was found that full duty had become payable by the importer.

The Centre preferred an appeal against the order passed by the H
250 SUPREME COURT REPORTS [2001) SUPP. I S.C.R.

A Commissioner of Customs (Import). The CEGAT in appeal, also held that
conditions of the Notification relating to providing free treatment were violated.
Regarding Condition No.4(iii), it has been found that its compliance by Centre
was not required. It has, however, been found that Section 28( 1) of the
Customs Act was involved and Assistant Commissioner (Customs) was not
B the 'proper officer' to issue show cause notice. The contention of the Centre
was accepted.

The CEGAT further found that Para 3 of the notice relates to confiscation
of the imported goods only on the ground of non-submission of certificate
under condition No. 4(iii) of the Notification. Non-compliance of the other
C conditions relating to free treatment, finds mention in Para 5 of notice saying,
it appeared that the importer had no intention to fulfil the provisions laid
down in the Notification and resorted to willful mis-statement and suppression
of facts with a sole intention of evading customs duty. The Tribunal found
thai a new case was made out for confiscation of the imported goods on the
ground of not providing free treatment, which was not the ground for
D confiscation. in Para 3 of the notice. It was also held that providing free
treatment to patients according to conditions of notification is a continuing
obligation in view of Mediwell case (supra). The CEGAT allowed the appeal
holding that confiscation was not valid, the Centre however was liable to pay
the duty but that could not be enforced for want of legal and valid show
E cause notice.

On behalf of the appellant, it has been vehemently urged that the show
cause notice has not been issued under Section 28(1) of the Customs Act.
Therefore question of notice having not been issued by a 'proper officer'
does not arises nor the question of limitation. It is submitted that the copy of
F the notice,' as annexed, does not mention Section 28( 1) of the Customs Act,
in any case if it is taken to be there, as contended, that would make no
difference. The submission is that Sub-section (2) of Section 125 of the
Customs Act provides that where any fine in lieu of confiscation of goods is
imposed, the importer shall also, in addition, be liable to any duty and charges
G payable in respect of such goods.

Learned counsel for the Centre draws our attention to Chapter XIV of
the Customs Act and submits that it relates to confiscation of goods and
conveyances and imposition of fines. It does not relate to imposition or
demand of customs duty. Section 124 and 125 also fall in Chapter XIV.
H Section 124 provides for issue of show cause notice before confiscation of
COMMR.OFCUS. (IMPORT) ~.JAGDISHCANCERANDRESEARCHCENTRE[BRIJESHKUMAR,J.] 25 J

goods and Section 125 relates to payment of fine in lieu of confiscation. A
Section 28 of the Act which falls in Chapter V provides for notice for payment
of duties which has been demanded by the notice in this case. Therefore, it
is submitted on behalf of the Centre that demand of customs duty and the
order for payment of the same is relatable to only Section 28( 1) of the
Customs Act, as also found by the CEGAT. That being the position, the
notice was beyond time and not by a 'competent officer' authorised to issue B
the same. The argument, as advanced, though seems to be attractive bpt on
1
scrutiny, we find no merit in it. Section 124 reads thus :-

"124. Issue of show cause notice before confiscation of goods, etc.-
No order confiscating any goods or imposing any penalty on any C
person shall be made under this Chapter unless the owner of the
goods or such person-

(a) is given a notice in writing informing him of the grounds on
which it is proposed to confiscate the goods or to impose a
penalty; D
(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: E
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."

It provides that an order for confiscation of the imported goods may be F
made after giving a show cause notice to the importer of the goods. It also
provides for imposition of fine.

Section 125 reads as under:-

125. Option to pay fine in lieu of confiscation.-(1) Whenever
confiscation of any goods is authorised by this Act, the officer G
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 H
252 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A 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
B goods the duty chargeable thereon.

(2) Where any fine in lieu of confiscation of goods is imposed under
sub-section (I) the owner of such goods 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."
c Whenever an order confiscating the imported goods is passed, an option,
as provided under Sub-section (I) 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
D goods". A reading of Sub-sections (I) 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(!). 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) of Section 125 of the
E 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
F attracting the provisions of Section 28(1) of the Customs Act. A reference
may beneficially be made to a decision of this Court reported in Mohan
Meakins Ltd. v. Commissioner of Central Excise, Kochi, [2000] 1 SCC 462
wherein it has been observed in Para 6 '-Therefore there is a mandatory
requirement on the adjudicating officer before permitting the redemption of
G 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 (I) 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.

H The next question which falls for consideration is, as to whether or not
COM MR. OF CUS. (IMPORT) '· JAGDISH CANCER AND RESEARCH CENTRE [BRIJESH KUMAR, l.) 25 J
a new ground or case for confiscation has been carved out as found by the A
CEGA T. According to the CEGA T, Para 3 of the notice relates to confiscation
of goods under Section 111 (o) of the Customs Act on the ground of non-
subm ission of certificate under Condition 4(iii) of the Notification. Therefore,
confiscation could be ordered only on the ground of non-submission of
certificate and on no other ground. It is further pointed out by the CEGAT B
that Para 5 of the notice relates to payment of customs duty only, on the
ground of violation of conditions relating to providing free treatment as well
as on account of non-submission of certificate under condition No. 4(iii) of
the Notification. In connection with the above argument, it would be relevant
to refer to para 7 of notice, a perusal of which would indicate that confiscation
of the subject goods was intended for violation of various conditions of C
Notification No. 64/88 dated 1.3.1988. We find, that various conditions which
were violated are indicated earlier in paragraphs 3 and 5 of the notice. Para
3 contained only one condition not various conditions. We, therefore, feel
that reading the notice parawise and confining it watertight within each
paragraph, would not be a correct way of construing a notice. It is to be read D
as a whole to find out as to whether the person concerned is made aware of
the various grounds on the basis of which action is proposed to be taken as
well as nature of the action. The view taken by the CEGA T on the point
indicated above is erroneous and cannot be upheld.

Learned counsel for the respondent has next urged that looking to the E
total picture of the free treatment provided by the Centre, it is to be noticed
that shortfall in providing free treatment is marginal. The percentage of persons
provided free treatment cannot be precise. During certain period, it may be
a little less or a little higher. He has also drawn our attention to a chart
prepared by the respondent and filed with an affidavit before the CEGA T,
showing that the treatment provided to outdoor patients is 39.8 per cent and F
instead of JO per cent indoor patients it is 8.9 per cent. In connection with
this submission, it may be observed that this aspect of the matter has been
considered by the Commissioner as well as CEGA T in some details and
ultimately it has been found that there was a shortfall which is also not
disputed by the respondent. A perusal of the condition in the Notification G
indicates that on an average, at least 40 per cent of all outdoor patients should
be provided free treatment. It is, thus, at least 40 per cent or may be above.
It is submitted that condition nowhere indicates that within what period, the
prescribed percentage is to be achieved. It is submitted that it should be
during the life of the equipment imported. Thus, shortfall of particular year
may be made good in the following year. We are not impressed by this H
254 SUPREME COURT REPORTS [2001) SUPP. I S.C.R.

A argument. It would, not at all, be necessary to prescribe any period to achieve
the given percentage of patients treated free. It should generally be all through
the period. It being at least 40 per cent, there is hardly any occasion to say
that in case there is more than 40 per cent in a given period, that may make
good the deficiency in the previous or the following year. In any case, over
and above all, it has not been in dispute that the Centre did not have inpatient
B facility. According to the condition of notification I 0% of total beds in hospital,
are to be kept reserved for patients of the families having an income of less
than Rs. 500 per month. The case of the Centre, in this connection, is that
they had an arrangement with another hospital in. the proximity which is a
sister concern of the Centre, with whom the Centre had entered into an
C agreement for reserving I 0 per cent beds. Payments in respect of these
inpatients is to be made by the Centre. We feel that the I0 per cent of the
total number of beds are supposed to be reserved for patients of such families
in the hospital where the equipment is installed. The purpose of the Notification
for grant of exemption from payment of customs duty would not b~ served
by making payment of expenditure incurred on some inpatients in some other
D hospital as alleged. It has also not been shown that alleged arrangements had
the approval of the concerned authority or that it was brought to their notice
at all.

The pleas raised by M/s.Jagdish Cancer & Research Centre, fail to
E convince us that it had been able to fulfil the conditions of the notification
for providing free treatment to the patients as required therein. We find that
the fintlings of the CEGAT on other points and the order passed are not
sustainable. In the result, the appeal is allowed and the order passed by the
CEGA T is set aside and the order passed by the Commissioner of Customs
(Import), Mumbai is restored. There would, however, be no order as to costs.
F
T.N.A. Appeal allowed.
·.

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