2014 (11) TMI 612 - AT - Customs

Valuation - Suppression of value of goods - Inclusion of separate charge for design, engineering fee - Confiscation of goods - Redemption fine and penalty - Held that - Appellants never concealed any fact from the Department and as soon as they were asked to furnish documents, they submitted all the documents such as contracts and detailed agreements, etc. when the documents were received, the department objected that design and engineering charges also should suffer duty and this was also paid by them with interest and it is the appellant s submission that appellant s did not even wait for all the clearances to take place even though the design and engineering charges were being paid in installments and not exactly lumpsum and when the duty was paid, the amount had not yet been paid in full to the supplier. advance amount received by the appellant was accepted as part of the consideration without any objection and without any hesitation and differential duty with interest was paid. Therefore, we find that in respect of advance amount received and duty paid, the imposition of penalty cannot be sustained. Accordingly, we set aside the penalty in respect of this alone. When contract produced for supply of basic design and engineering, drawings and supervision of erection, etc., one is as much a part and condition of the contract as the other and addition of these charges to the assessable value is sustainable - no segregation of supervision cost, local material cost, local engineering cost have been made. At the same time, there is also no indication that the design and engineering cost does not include the basic design and engineering, cost of the equipment supplied. Prima facie, we do not find any merit. In respect of design and engineering charges and technical supervision charges, we find that it is always a disputable item and requires interpretation of the agreement, application of valuation rules and unless there is evidence to show that such agreement was deliberately forged and was not part of the contract for supply of equipment or it was not declared at all and there was a considerable effort to hide the fact of payment of such charges, it may not be appropriate to impose penalty. In this case, from the second bill of entry, always the assessment was provisional and therefore on that ground also, it may not be appropriate to impose penalty. Therefore the penalty imposed on this basis is also set aside. When we have limited the whole case to confirmation of demand for duty and interest thereon, and set aside the penalties on all the counts, it would not be appropriate to uphold the confiscation of the goods and imposition of fine in lieu of penalty. Therefore, the redemption fine also has to be set aside and is set aside. When there is no penalty on the main appellant, there cannot be penalty on the employee also. Therefore, the penalty imposed on the employee who is the second appellant before us is also set aside. - Decided in favour of assessee.

Summary

Issues:
1. Duty liability on advance payment and design/engineering charges
2. Imposition of penalty on advance payment and design/engineering charges
3. Confiscation of goods and imposition of fine

Analysis:

Issue 1: Duty liability on advance payment and design/engineering charges
The appellants imported a sinter plant and paid advance amounts for design/engineering charges. Customs authorities claimed duty on these charges. The appellants admitted the omission of advance payment from the value declared for duty assessment, promptly paid the duty with interest, and provided all relevant documents. The Tribunal found the appellants acted in good faith, promptly rectified the error, and upheld the duty liability on advance payment but set aside the penalty.

Issue 2: Imposition of penalty on advance payment and design/engineering charges
Regarding the penalty on advance payment, the Tribunal noted the appellants' genuine mistake and immediate corrective action. The penalty was set aside for advance payment. However, for design/engineering charges, the Tribunal analyzed the agreement details, determining that these charges were integral to the contract and should be included in the assessable value. While penalties were initially imposed, they were later set aside due to the disputable nature of the charges and the provisional assessment.

Issue 3: Confiscation of goods and imposition of fine
The Tribunal, having set aside penalties on duty liabilities, deemed it inappropriate to uphold the confiscation of goods and imposition of fines. Consequently, the redemption fine and penalties on the employee were also set aside. With no penalties on the main appellant, penalties on the employee were deemed unjustified. Thus, the appeals were disposed of with the confiscation of goods and fines being set aside.

In conclusion, the Tribunal upheld duty liabilities on advance payment and design/engineering charges, setting aside penalties due to the appellants' good faith actions. Confiscation of goods and fines were deemed unjustified and subsequently set aside.