2006 (7) TMI 486 - AT - Customs

Valuation - Technical document s cost whether includible - Redemption fine and penalty - Quantum of

Summary

Issues Involved:
1. Whether there has been any under-valuation of Blast Furnace equipment covered by contract MD 302 by transferring part of the value to technical documents and drawings under contract MD 301.
2. Determination of the correct value of the imported equipment.
3. Legality of the confiscation and imposition of redemption fine and penalty.

Issue-wise Detailed Analysis:

1. Under-valuation of Blast Furnace Equipment:
The primary issue is whether the equipment under contract MD 302 was under-valued by transferring part of its value to technical documents under contract MD 301. The Tribunal noted that the Supreme Court had remanded the case to examine this specific allegation. The Commissioner concluded that the appellants had negotiated a composite price for the equipment and technical documents, which was later split into two contracts at the appellants' insistence. This split was allegedly done to reduce customs duty liability, as technical documents attracted a 'nil' rate of duty while equipment attracted a higher duty. The Tribunal found that the appellants had indeed insisted on splitting the contract to reduce duty liability, which supports the department's case of under-valuation.

2. Determination of Correct Value:
The Tribunal determined that the value of the equipment was not accurately declared. The initial offer from SN was 28 Million DM for the Blast Furnace and 1.9 Million DM for the 3 Torpedo Ladle Cars, totaling 29.9 Million DM. After negotiation, the price was reduced to 26 Million DM. The Tribunal used the break-up of prices provided in a telex (19% for engineering and 81% for equipment) to estimate the value of the engineering and equipment. The engineering cost was calculated as 5.434 Million DM, leading to a revised equipment value of 20.566 Million DM. This value was adopted as the correct value of the equipment, as opposed to the declared value of 13.5 Million DM and the lower authority's value of 21.2747826086 Million DM.

3. Confiscation, Redemption Fine, and Penalty:
The Tribunal upheld the order of confiscation of the goods under Section 111(m) of the Customs Act, 1962, due to the under-valuation. However, considering the reduced differential duty, the Tribunal reduced the redemption fine from Rs. 6.5 crores to Rs. 2 crores and the penalty from Rs. 4 crores to Rs. 1 crore. The Tribunal also noted that no fresh investigation could be directed, and the decision had to be based on the existing record, which supported the department's case of under-valuation.

Conclusion:
The appeal was partly allowed, with the Tribunal setting aside the computation of duty and remanding the matter for fresh quantification of the duty amount by the adjudicating authority. The confiscation was upheld, but the redemption fine and penalty were significantly reduced.