Redemption of confiscated goods under Section 125 entails liability for customs duty and interest.

The appellant purchased a Yamaha R-1 motorcycle bearing registration No. MH 06 AR 8899 from Mohammad on 10 April 2013 for ₹5,00,000, relying on documents including a Bill of Entry, insurance papers, payment challan and sale letter.

The motorcycle had allegedly been imported through Indira Gandhi International Airport under Bill of Entry No. 110190/29/5/2008 dated 29 May 2008 and registered in the name of M/s Galaxy Trading.

Acting on intelligence, Customs recovered the motorcycle from a workshop and found that the registered owner’s address was fictitious, the Bill of Entry was fabricated, and no customs duty had been paid.

The motorcycle was consequently confiscated.

The original authority imposed redemption fine of ₹50,000 and penalty of ₹20,000 under Section 112 of the Customs Act, 1962.

The Commissioner (Appeals) upheld the confiscation and redemption fine but set aside the penalty.

The appellant challenged the order before the Tribunal, principally contending that the proceedings were time-barred and that he was a bona fide purchaser without knowledge of the fraudulent import.

1. Whether the confiscation proceedings initiated through the show-cause notice dated 19 August 2013 were barred by limitation when the motorcycle had been imported in 2008 but the fraud was discovered only on 17 April 2013.

2. Whether a purchaser who claims to have acquired the motorcycle bona fide on the basis of apparently genuine documents could avoid liability arising from the motorcycle’s illegal importation and non-payment of customs duty.

3. Whether, upon redemption of the confiscated motorcycle under Section 125 of the Customs Act, the owner or possessor was liable to pay customs duty and interest.

4. Whether the redemption fine imposed by the lower authorities required reduction in view of the appellant’s good-faith purchase and the setting aside of the penalty.

The Tribunal applied Sections 111(d) and 111(m) of the Customs Act, 1962, concerning confiscation of improperly imported goods and goods covered by false or incorrect documents, along with Section 123 as referred to in the order.

Section 125(1) permits redemption of confiscated goods on payment of a fine in lieu of confiscation, while Section 125(2) makes the owner liable, in addition, to the duty and charges payable on the goods.

The Tribunal held that the duty liability arising under Section 125(2) may be assessed and determined through Section 28, and that delayed payment attracts interest under Section 28AB.

It relied on Commissioner of Customs (Preventive) v. AAFLOAT Textiles (I) Pvt. Ltd., 2009 (235) E.L.T. 587 (S.C.), for the principles that fraud vitiates transactions, forged documents have no legal existence, and caveat emptor requires a purchaser to verify title and authenticity.

It further relied on Union of India v. Security and Finance (P.) Ltd., 1983 (13) E.L.T. 1562 (S.C.), Fortis Hospital Ltd. v. Commissioner of Customs (Import), 2015 (318) E.L.T. 551 (S.C.), Jagdish Cancer & Research Institute v. Union of India, and Navayuga Engineering Co. Ltd. v. Union of India, 2024 (30) E.L.T. 3 (S.C.), to distinguish the independent duty liability from confiscation and penalty proceedings and to affirm the liability to pay duty and interest where the goods are redeemed under Section 125.

The Tribunal found that the motorcycle had been smuggled or otherwise illegally imported because the Bill of Entry was fabricated and no customs duty had been paid; it was therefore liable to confiscation under Sections 111(d) and 111(m).

Since Customs discovered the fraudulent import only on 17 April 2013 and issued the show-cause notice on 19 August 2013, the notice was held to be within time; the later discovery of fraud prevented the appellant from relying on the earlier date of import to establish limitation.

The appellant’s asserted bona fides did not cure the defective title or illegality of importation.

Applying AAFLOAT Textiles and the principle of caveat emptor, the Tribunal held that a purchaser must undertake reasonable verification of the genuineness of the import documents and title.

The Tribunal further held that duty under Section 125(2) becomes payable when the owner exercises the option to redeem the confiscated goods, and that the duty may be quantified under Section 28 with consequential interest under Section 28AB.

Nevertheless, because the Commissioner (Appeals) had accepted the appellant’s good-faith purchase sufficiently to set aside the penalty, the Tribunal considered a lower redemption fine appropriate.

The penalty remained set aside.

The redemption fine was reduced from ₹50,000 to ₹10,000, while the liability to pay duty and interest was upheld.

The appeal was consequently partly allowed.