2018 (6) TMI 1164 - AT - Customs

Valuation - Undervaluation of imports to evade duty - allegation of paying excess consideration by diversion of funds - Scope of SCN - Territorial limits of national jurisdiction - it was alleged that a parallel transaction on the same goods operated entirely outside the country between M/s IMR Metallurgical Resources AG and the Singapore-based subsidiary of the appellant-importer M/s Knowledge International Strategy Systems Pte Limited involved procurement from mines of coal that did not meet the threshold specifications and for consideration far less than that declared at the time of import - interpretation of statute. Held that - A harmonious construction of section 46 requiring all goods imported into India to be covered by correct entry which includes specified particulars and of section 47 entitling goods to be cleared for home consumption is that such goods as are prohibited or have not discharged the duty liability as assessed should remain in custody without being cleared for home consumption. Goods that are cleared for home consumption carry with them the presumption of duty liability having been discharged in full and the goods are not prohibited for import under any law. It is only these two aspects of the goods that can deny clearance for home consumption. Once the goods have been cleared they cease to be imported goods within the meaning assigned in section 2 of Customs Act 1962 thus ending jurisdiction over the goods under Customs Act 1962. Revival of the jurisdiction is contingent upon establishing that duty has not been paid in full or that the goods are prohibited for import. Assessment of duty is empowered under section 17 as final or as provisional for subsequent finalization under section 18 of Customs Act 1962. The impugned goods had been provisionally assessed to duty under section 18 of Customs Act 1962 which upon subsequent finalization rendering a closure to the assessment and implied freezing of duty liability. It is not the case of Revenue that duty has been short-levied thus foreclosing the invoking of section 28 of Customs Act 1962 - the goods have been cleared for home consumption in the most legally undeniable manner one that does not admit of recall under the provisions relating to imported goods which prescribes only two inherent and inextricable pre-requisites duty and prohibition - for such clearance. A conjoint reading of the definition and the authority to proceed with confiscation supra would lend credence to the inference that goods that have been properly cleared for home consumption as provided in section 47 of Customs Act 1962 cannot be subjected to confiscation. This casual dismissal of application of rule 5 and 6 of Customs Valuation (Determination of Value of Imported Goods) Rules 2007 is contrary to the provisions of law. The adjudicating authority is not in compliance with the mechanism prescribed in law. In view of our extensive findings on the scope of actionability on goods cleared for home consumption the compliance with the valuation scheme of Customs Act 1962 and the erroneous finding on facts we do not propose to examine the grounds of appeal that were not pressed during the hearing - appeal allowed.

Issues Involved:
1. Allegations of overvaluation and misdeclaration of imported coal.
2. Jurisdiction and applicability of Customs Act, 1962 for confiscation and penalties.
3. Validity and authenticity of documents relied upon by the investigation.
4. Compliance with the Customs Valuation Rules, 2007.
5. Examination of the quality and calorific value of imported coal.

Issue-wise Detailed Analysis:

1. Allegations of Overvaluation and Misdeclaration of Imported Coal:
The appellant, M/s Knowledge Infrastructure Systems Private Limited, imported coal from Indonesia through contracts with Hongkong-based suppliers for supply to M/s Mahagenco Ltd. The investigation alleged a parallel transaction involving a Swiss supplier and a Singapore subsidiary of the appellant, claiming that the coal did not meet the specified quality and was overvalued. The impugned order found that the excess consideration from the substandard coal was remitted outside the country.

2. Jurisdiction and Applicability of Customs Act, 1962 for Confiscation and Penalties:
The impugned order invoked the Customs Act, 1962, specifically sections 46, 111(m), 112, and 114AA, to declare the goods liable for confiscation and impose penalties. The Tribunal observed that the goods had been cleared for home consumption, and thus, ceased to be "imported goods" under section 2(25) of the Act. The Tribunal emphasized that the Customs Act, 1962, does not extend jurisdiction over goods once they are cleared for home consumption unless there is a breach of duty or prohibition.

3. Validity and Authenticity of Documents Relied Upon by the Investigation:
The investigation relied on documents obtained from M/s IMR Metallurgical Resources AG, which were disputed by the appellants for their authenticity and provenance. The Tribunal noted that the investigation failed to authenticate these documents through internationally accepted channels and did not investigate the overseas entities involved. The Tribunal found that the documents presented by the appellants at the time of import were credible and could not be dismissed without substantial evidence.

4. Compliance with the Customs Valuation Rules, 2007:
The Tribunal scrutinized the compliance with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. It found that the adjudicating authority did not follow the sequential application of the rules and rejected the declared value without valid justification. The Tribunal emphasized the necessity of adhering to the valuation rules and criticized the arbitrary addition of a 3.5% profit margin without verifiable evidence.

5. Examination of the Quality and Calorific Value of Imported Coal:
The investigation and the impugned order focused on the quality of coal, particularly its gross calorific value. The Tribunal found that the conversion of calorific values from the Deputy Chief Chemist's report was flawed due to the absence of necessary values for total moisture and mineral content. The Tribunal also noted that M/s Mahagenco Ltd did not raise any issues regarding the quality of coal, and the consumption of coal for energy generation was not considered in the investigation.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals based on the findings that the goods were properly cleared for home consumption, the valuation rules were not followed, and the factual basis for the allegations was flawed. The Tribunal emphasized the importance of rule of law and the constitutional mandate, dismissing the reliance on unverified documents and speculative conclusions.

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