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Fortis Hospital Ltd. v. Commissioner of Customs, Import

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 1049 of 2008)Decided 24 Mar 2015
Civil Appeal No. 1049 of 2008
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

The appellant (successor to Wockhardt Hospital and Heart Institute, Bangalore) had imported an expensive Cardiac Catheterization Laboratory (Angiography system) in 1990 duty-free under a customs exemption notification meant for hospitals providing a stipulated share of free treatment to poor patients. Customs authorities later found the hospital was not meeting those free-treatment conditions, confiscated the equipment (with an option to redeem it on paying a fine), and also separately demanded full customs duty and a penalty. The hospital's appeal to the tax tribunal (CESTAT) succeeded in getting the duty demand struck down, but the Bombay High Court reversed that and restored the duty demand, prompting this appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that under Section 125(2) of the Customs Act, duty becomes payable only when the importer actually exercises the option to pay a fine and redeem confiscated goods: the mere confiscation order offering that option does not by itself trigger the duty liability. Since the hospital never exercised the redemption option or paid the fine, the duty demand could not be sustained, and in any case the original show-cause notice (issued only under Section 124, dealing with confiscation and penalty) never mentioned duty at all, so the final order could not add a duty demand beyond its scope. The Court restored the CESTAT's view, set aside the High Court's judgment, and allowed the appeal, while clarifying that the Customs Department remains free to pursue a separate, independent action for duty if still within the limitation period.

Lesson Learnt

A government department cannot bootstrap a duty demand onto a confiscation order unless the importer actually chooses to pay the redemption fine; if a show-cause notice is framed narrowly (e.g. only about confiscation and penalty), the final order cannot go beyond that scope to impose a separate liability like customs duty.

Official source (sci.gov.in)View Judgment (PDF)

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